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26 Feb, 2007 12:12

Prices boom gives good news for Russia's Norilsk Nickel

Prices boom gives good news for Russia's Norilsk Nickel

Nickel is the metal of the moment, now worth more about $US 40,000 per tonne. The supply-demand situation benefits greatly Russia's largest producer Norilsk Nickel.

Analysts are tipping a global nickel supply deficit of nearly 200,000 tonnes this year and a further 160,000 tonnes in 2008.

“We've had this underinvestment in the sector generally. This means that the headline projects that were in the sector for the past decade are not really performing the way they were supposed to. And yet the world has consistently gone on 2-2.5% growth of nickel consumption year and year out. So, supply is flat and consumption is going up. And the reality is that there's no big headline project right now being developed in the world that could fundamentally change the supply-demand balance,” says Timothy McCutcheon, DBM Capital Partner.

This means the strategic environment is positive for Russia's Norilsk Nickel, which accounts for 19% of global production, making it the world's largest producer. The company however has been in the news for other reason.

There's persistent press speculation that the Russian government may try to return to control, and the recent takeover of Mikhail Prokhorov's shareholding by former partner Vladimir Potanin, making the latter the effective owner of the company, has also been in the news. This does not affect the day-to-day operation of the company, but it certainly does affect its long-term strategies.

The company has announced plans to build its own arctic cargo fleet and develop a port at Murmansk to reduce transportation costs. But there is a sense it could be doing more.

“We've seen weakness in, say, copper, zinc, – but nickel, it's [Norilsk Nickel's] main product, recently broke $US 40,000 per tonne. There's a significant boom in nickel market. At the moment the stock is traded at about $US 180 per share. But we have a target price at $US 220. We say investors should buy Norilsk Nickel right now,” suggests Eric Depoy, ALFA Bank Analyst.

But with global supply issues likely to mean continued price pressure, Norilsk Nickel will remain in focus for its capacity to produce more and capitalise on the current market.