Russia fears light fire under nickel price

Nickel surged to a more than three-year high amid growing fears that Russia's Norilsk Nickel, top producer of the metal, could be the next victim of US sanctions against Russia that has already caused chaos on aluminum markets.

Nickel, used primarily in steelmaking, jumped as much as 4.6%  to $14,870 a ton on the London Metal Exchange, the highest level since February 2015. Bullish sentiment was also boosted after production slumped 18% at Brazil's Vale, world number two producer. Year to date nickel is the top performing major metal enjoying a 21% rise. Measured from the bottom of the mining cycle early 2016 nickel has nearly doubled in price.

Norilsk is said to be in early stage talks with battery makers over possible investment in its mining assets, but is also interested in downstream joint ventures in return

“There’s definitely some pricing in of the possibility that nickel will be incorporated” if there’s a fresh round of sanctions against Russia, said Colin Hamilton, managing director for commodities research at BMO Capital Markets told Bloomberg.

Any sanctions against leading producer Norilsk could crimp output at a time when the market is headed for multi-year deficits thanks to additional demand from the electric vehicle market.

Nickel, together with manganese and cobalt, is a crucial elements in batteries favoured by most of the world’s automakers as the industry moves away from the internal combustion engine.

However, only 5% of nickel production is used in batteries and less than 1% in goes into EV power plants at the moment. The industry is still dominated by Chinese nickel pig iron makers using non-battery grade material from Indonesia and the Philippines.

Norilsk is said to be in early stage talks with battery makers over possible investment in its mining assets, but is also interested in downstream joint ventures in return.

 “We might be interested in having some deeper cooperation, say on the battery side, and building a more complete value chain,” Anton Berlin told Reuters in an interview on the sidelines of a battery materials conference in Shanghai.

Nornickel is looking for “more than just an offtake (sales) agreement,” he said, adding that a downstream joint venture in China would be a possibility.

Asset grab

Moscow considers US sanctions a form of unfair competition and any response will be in line with Russia's interests, Kremlin spokesman Dmitry Peskov said on Monday according to a Reuters report.

"The sanctions drive against Russia is becoming an idée fixe. We still consider these sanctions illegal… and we're convinced that any economist can see open attempts to squeeze Russian companies out of global markets," Peskov told reporters.

"It's nothing more than an international asset grab," he added.

Aluminum anarchy

Aluminum jumped to fresh six-year highs as buyers scrambled to cope with ongoing chaos in the global supply chain more than a week after the US slapped sanctions on Rusal, the top producer outside China.

The metal climbed as much as 3.2% to $2,481 a tonne on the LME, the highest level in intraday trading since August 2011. Goldman Sachs, an investment bank, predicts that the metal, mainly produced from bauxite ore, could spike to $3,000 in the near term.

Rusal’s cargoes are severely disrupted. At least one Japanese buyer asked the company to halt shipments due to concerns over inability to pay in dollars and fears of secondary sanctions, according to an official at the buyer.

The legal quagmire surrounding financing, trading and purchasing of Rusal metal by end-users has put a large chunk of world stockpiles in limbo. Russian aluminum has made up a significant part of global inventories since at least the early 1990s, when the Soviet Union’s collapse triggered a flood of exports.

Russia is the also the top producer of palladium, a precious metal used in autocatalysts to scrub emissions. Sanctions fears have fuelled an eight-day rally in the platinum group metal which was last exchanging hands for $1,031 an ounce on the Nymex market. Two years ago palladium could be picked up for less than $500 an ounce.

(With Bloomberg News)