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Rising Premiums For Bonded Nickel Beckon Q2 Supply Deficit

January saw the premium rise of bonded nickel in China, a clear indication of raw feed shortage for the country's stainless steel industry.

The premium stands at $105 today, which is a 400 percent increase from the first week of January when it only played around $25. This week alone, premium for bonded nickel surged at $40.

The rising premium is good news to nickel investors, as nickel is expected to soar in prices until the June or July. Moreover, the premium hike signals the upcoming 2nd quarter deficit, as steel companies around the globe are all doing their best to purchase the quantity of nickel ore they needed for this year.

Nickel remains the most expensive base metal today.

The Indonesian unprocessed minerals embargo was implemented on January 12, 2014 as part of the government's plan to enhance the currently-booming local mining industry. Indonesia believes that by domesticating its unprocessed minerals it would force local mining firms to build smelters and make steel without the help of foreign manufacturers. However, many smaller local mining companies see this as unfair, given that they don't have the capacity to invest in expensive smelters. This also resulted to a handful of small mining shutdowns in the country, which heavily affected Indonesia's ailing unemployment rate.

The smelting industry, which uses nickel ore for producing steel, is one of the many sectors that suffered from the ore embargo. Countries like Japan and China, which remain the top nickel importers in the world, are now using their stockpiled ore as supply tightens.

China, for example, is on the verge of emptying out its nickel storage, forced by the global shortage and lower-rate quality of ore being sold by alternative suppliers like the Philippines, Australia, Russia, and New Caledonia.

The commodity fraud crisis in China that impacted bank financing of metal deals in 2014 also resulted to diminishing nickel storage, urging China to increase nickel importation amidst the ore ban.

To alleviate the worsening supply quandary, the Philippines, the second-largest nickel ore supplier in quality and in quantity, stepped up and presented itself as an alternative to Indonesia. However, its ore is 2 percent lower in quality compared to that of Indonesia, a fact that poses problem to steel producers. Steel producers, for them to reach the Indonesian quality, have to embark on extra processing methods that would cost them additional expenses.

Nickel consumers, on the other hand, have seen hope from small and nascent companies such as Amur Minerals Corporation (OTC:AMMCF) and Sirius Resources (SIR:ASE), as their possible inclusion in the global commerce this year could help the ailing supply segment. Both companies are focused on promising mining sites in their regions, in Russia and Australia, respectively.