Further upside for nickel in 2017

Further upside for nickel in 2017

Published on: Dec 9, 2016 | by Trevor Hoey

It was little over a month ago that nickel was trading at sub-US$10,000 per tonne prices, indicating it was no surprise that a three-week/circa US$1800 per tonne spike between October 21 and November 11 was going to ignite interest in the commodity.

However, this could be part of a more sustained run given that nickel for the best part has remained above US$11,000 per tonne, and as recently as this week pushed up towards the US$11,700 per tonne mark.

Last time it traded at these levels was in mid-2015, and at that stage, as the largest ASX listed pure nickel play, Western Areas (ASX: WSA) was hovering in the vicinity of $3.70. The company’s shares have increased from approximately $2.40 in early November to hit a recent 12 month high of $3.43 as investors flocked to the commodity. This places the company’s market capitalisation in the order of $870 million.

It should be noted here that commodity prices do fluctuate and also, historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

However, one important factor appears to have gone unnoticed and we will look at that when examining the company.
Macquarie bullish on nickel outlook

Returning to what may lie ahead for nickel price, analysts at Macquarie Wealth Management are fairly upbeat about its prospects, noting at the end of November that there was evidence of disruption to China’s traditional business model whereby it sources the raw material either domestically or internationally as it has the capacity to produce a refined product.

Looking at current dynamics the broker said, “In our view, the cost structure of producing nickel pig iron and Ferro chrome in China from imported raw materials goes a long way to setting the price for these products, and as such the recent and potential future ore price rises are certainly worth watching”.

The broker said it sees the potential for strong nickel price rises in the first quarter of 2017, suggesting London Metals Exchange (LME) prices could push up towards US$12,500 per tonne.

Although broker projections and price targets are only estimates and may not be met.

The metal last traded consistently in this range between March and June 2015. At the start of that quarter, WSA was trading north of $4.00, having hit a 2015 high of approximately $4.50 in February. The question now is whether it is too late to climb on board WSA, or is there circa 40% upside which would see it back around the $4.50 mark.

see link for full report which includes comments on WSA, IGO, PAN, BUX, MRD, CZI

http://finfeed.com/hot-topics/upside-nickel-2017/20161209/