Nickel soars 9% to 3-year high on Russia sanctions fears

Nickel soared 9 percent to a three-year high on Thursday, extending the previous session’s blistering rally on fears the metal could become ensnared in U.S. sanctions on Russian firms, although analysts say gains could be short-lived.

The United States last week slapped sanctions on major Russian aluminium producer Rusal and traders fear the move may be broadened to hit Russia’s Nornickel, the world’s second largest producer of the metal.

Nornickel is linked with both Rusal and sanctioned Russian oligarch Oleg Deripaska.

Three-month nickel on the London Metal Exchange rallied 9.3 percent to $ 16,690 a tonne overnight, the highest since December 2014. The metal was up 3 percent at $ 15,730 by 1024 GMT, adding to Wednesday’s 7.5-percent spike.

“The U.S. can’t afford to (impose sanctions on) Nornickel because they are so heavily reliant on (its) palladium. The question is how the situation will evolve if tensions tighten between Russia and the U.S., that’s what the market is currently playing,” said Julius Baer analyst Carsten Menke.

But he added: “If any commodity moves more than 10 percent in two days, its either a severe disruption to supplies, which we don’t have in this case, or its speculators. In case of nickel its the latter, the rally is absolutely overdone.”

Russian news agencies reported on Wednesday that the U.S. administration had informed the Russian embassy in Washington that the United States had no immediate plans to impose new sanctions.

NICKEL DEFICIT: The global nickel market deficit narrowed to 2,500 tonnes in February from a revised deficit of 15,800 tonnes in the previous month, the International Nickel Study Group said.

NICKEL OUTLOOK: “Global Ferronickel (says the) nickel rally is temporary and suggests no change to their production plan for the moment. Meanwhile Indonesia reports that nickel ore exports will probably double this year (from 5 million tonnes to 10 million),” said broker Marex Spectron in a note.

ALUMINIUM: Aluminium extended its rally to hit its highest level in almost seven years at $ 2,718 a tonne. It was last up 2.5 percent at $ 2,600.50.

The light metal has risen by nearly a third since the United States announced sanctions against Rusal, the world’s No. 2 aluminium producer, on April 6. Nickel has gained almost a quarter this month.

NOVELIS: Novelis Corp, the world’s biggest producer of rolled aluminium products, said it would no longer purchase metal produced by Russia’s Rusal to comply with U.S. sanctions.

SHANGHAI NICKEL TRADING FEES: China’s Shanghai Futures Exchange will adjust its intraday transaction fee for nickel futures contracts for July delivery after July contracts rose 4.3 percent on Thursday.