Update On Norilsk Nickel
Summary
- Nickel prices have been trending lower.
- Stockpiles have been steady.
- NILSY shares made a big comeback since the March low.
- A massive producer with significant country risk.
- Precious metals are a bonus.
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On March 11, in an article on Seeking Alpha, I explored the risks and potential rewards of owning shares in the Public Joint Stock Company Mining and Metallurgical Company Norilsk Nickel (OTCPK:NILSY). On that day, NILSY shares closed at $28 on the way to a low of $18.62 on March 18, the lowest level since early 2019.
Meanwhile, many other stocks and commodities fell to levels not seen in years or, in some cases, decades in mid-March. Like the rest of the stock market, NILSY shares have made an impressive comeback over the past two and one-half months. The shares were trading at $31.78 on Friday, May 29.
Commodity prices moved lower along with stocks in mid-March as the worst financial crisis since 2008 gripped markets. Twelve years ago, central banks and governments used monetary and fiscal policies to stimulate the economy, which fueled a rally in commodities. The nickel price rose from a low of $9,755 per metric ton on the LME in early 2009 to a high of $21,780 per ton in 2011. The price more than doubled. In 2020, the level of stimulus combatting the impact of the global pandemic is many times higher than in 2008.
NILSY is a leading producer of nickel in the world. The price of three-month forward LME nickel was trading at just below $12,200 per ton on May 29, down from a high of $14,360 in January. In March, it fell to a low of $11,142 per ton.
If the unprecedented levels of stimulus are going to have a similar effect to what followed the 2008 crisis, the price of nickel and NILSY shares could be heading a lot higher.
Nickel prices have been trending lower
Indonesia is the leading nickel-producing nation in the world. The government put a mineral export ban in place effective January 1, 2020, which continues to provide support for the base metal that is a critical component in batteries and stainless steel. NILSY is Russia’s nickel giant.
The price of the nonferrous metal has been trending lower since September 2019 when supply fears over Indonesian supplies took the price to a high of $18,450 per tons. Since then, the price has moved steadily lower.
Source: LME
The chart shows that nickel for three-month delivery fell to a low of $11,142 on March 23, 39.6% below the 2019 peak. While the price has made lower highs and lower lows, nickel recovered over the past weeks at was at just under the $12,200 level on May 29, 9.5% above the late March low.
Stockpiles have been steady
As of March 29, there were 233,178 metric tons of nickel in LME warehouses around the globe. According to the LME, at the end of April, stockpiles of the metal stood at 230,712 tons, at the end of March at 228,768 tons, and on the final day of February 2020 at 235,368 tons.
There have been no dramatic increases or decreases in nickel inventories over the past months as the price worked its way lower until March as has recovered over the past two months.
NILSY shares made a big comeback since the March low
Meanwhile, NILSY shares have been a lot more volatile than the metal.
Source: Barchart
NILSY fell from a high of $35.52 on February 19 to a low of $18.62 on March 18, a 47.6% drop in one month. The move back to $31.78 on May 29 or 70.7% above the March bottom shows that the shares underperformed the price action in the nickel market on the downside and outperformed the metal on the upside. The shares were a bit lower at the $31.645 level on Monday, June 1.
A massive producer with significant country risk
I never discount the country risk associated with a Russian commodities company. The shares of NILSY trade on the OTC market in the US. Meanwhile, at $31.78 per share, the company had a market cap of $49.958 billion, trades an average of 107,209 shares each day, and pays shareholders a 4.72% dividend.
Source: Nickel global leading companies by production 2018 | Statista
Norilsk is the second-largest nickel-producing company in the world, right behind the Brazilian mining giant Vale SA (VALE).
NILSY operates as a metals and mining company in Europe, Asia, North and South America, Russia, and the CIS countries via several subsidiaries. It explores for, extracts, refines, and processes minerals worldwide. NILSY also produces copper, cobalt, and a host of other metals, including precious metals.
Precious metals are a bonus
The Norilsk region of Siberia is home to Russia’s leading producing nickel property is rich in precious metals. NILSY is a gold and silver producer. Moreover, the majority of the world’s platinum group metals come from only two countries, South Africa and Russia. NILSY is one of the leading producers of platinum, palladium, rhodium, iridium, and ruthenium. While the platinum price has been stagnant over the past years, the prices of the other metals have soared.
Source: CQG
At $1940 per ounce on May 29, the palladium price was over four times higher than at the beginning of 2016.
Source: Kitco
At over $6,000 per ounce on June 1, rhodium was over ten times higher than at the low in 2016.
Source: Heraeus
The price of iridium moved from $520 in 2016 to $1650 per ounce as of June 1.
Source: Heraeus
Ruthenium, another PGM, appreciated from $40 in 2017 to $305 per ounce at the beginning of June.
If 2008 through 2011 is a guide for the price action in the commodities market after the 2020 crisis caused by the global pandemic, NILSY could be a company that is worth the Russian credit risk.
Source: Barchart
In early 2009, the shares fell to a low of $3.50 before moving to a high of $28 in 2011. In a world where raw material prices could be moving a lot higher as the stimulus weighs on the purchasing power of the dollar and other world currencies, NILSY’s franchise in the nickel and PGM business could take its shares a lot higher over the coming years.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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This article was written by
Andrew Hecht is a 35-year Wall Street veteran covering commodities and precious metals.
He runs the investing group The Hecht Commodity Report, one of the most comprehensive commodities services available. It covers the market movements of 20 different commodities and provides bullish, bearish and neutral calls; directional trading recommendations, and actionable ideas for traders. Learn more.Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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Comments (20)
Rhodium comes from the South African PGM mines.
In the PGM group of metals NILSY produces approx 40% of the worlds Palladium.
The company's recent presentation gives an excellent analysis and outlook for all the metals they produce.
It is the only company that I know of that looks ahead post Covid.
It is a good read not only for NILSY but also for Cu and PGM stocks.
Long nilsy
Now, that is what I call a country RISK.
Putin is a lot smarter than the folks who run the LDCs.