The market has been hot for nickel producer Western Areas Ltd (ASX: WSA) after global nickel spot prices shot up about 50% since January. Its share price beat even that gain – a 76.6% increase in four months.
Then last week it dropped about 9% in two days.
What happened: Nickel prices dropped about 10% at the same time in what seems to be profit taking. A price surge the week before sent it up sharply and now it has returned to its previous level.
Western Areas' stock reacted in the same way. Like a gold stock, the share price will follow the commodity price.
Now What: The catalyst story that is driving the upward trend is still in place.
– Indonesian ore export ban
Indonesia, a major world exporter of nickel ore, enacted a ban of all ore exports in January. This isn't a short-term move to drive up price.
The country wants its nickel producers to develop domestic smelting processing plants to get the maximum production value of the metal. The ban is to change the whole internal nickel market, which could take years to achieve.
— Chinese nickel demand
Nickel has a number of industrial uses such as for making stainless steel. The Chinese market for stainless steel is still strong. As world supply was already declining since 2013, the export ban has squeezed it tightly.
According to Western Areas, China is estimated to have about six months' supply at most. Demand could grow and market speculators can drive the spot price, so the commodity could rise even further.
— BHP to sell down nickel assets
BHP Billiton Limited (ASX: BHP) wants to concentrate on its "four pillars" strategy of iron ore, petroleum, copper and coal, so it is planning to sell nickel assets like its Nickel West business.
Already, big players like Glencore Xstrata PLC (LON: GLEN) are looking at that buying opportunity. Western Areas could also be on their radars.
