War in Ukraine pushes price of nickel into uncharted territory

Nickel briefly crossed a record high of $100,000 a ton after fresh supply concerns from impending Russian sanctions.

As commodity prices continue to rise across the globe in response to Russia’s invasion to Ukraine, nickel prices rose above $100,000 a ton today on the London Stock Exchange (LME).

“Nickel prices seriously hit nerves today, with trading suspended on the London Metal Exchange, after a record-breaking spike in prices,” said Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown.

This has been caused by supply fears for the metal due to the war in Ukraine.

With impending international sanctions on Russia, suppliers have been left scrambling for new sources of raw materials, which is driving the price of commodities further.

Nickel is no exception, with Russia accounting for 7% of the world’s nickel production, according to Reuters.

In addition to potential bans, countries should also be aware of potential logistical difficulties.

“Although the brakes have been put on sanctioning Russian commodities exports, already supplies are disrupted as shipping companies avoid ports in the region [Russia] and metals companies start to reduce their exposure to Russia,” said Streeter.

For context, last Monday the price of nickel stood at $25,425 per ton, according to LME.

Over the past five years Nickel has risen $11,000 per ton. This week alone it has risen $72,000, according to Bloomberg.

“It’s going crazy -- it’s not reflecting any industry fundamentals,” Jiang Hang, Head of Trading at Yonggang Resources Co, told Bloomberg.

Not only is nickel used in stainless steel production, but it is becoming an increasingly popular product for eco-friendly vehicles.

Specifically, the metal is used in the production of lithium-ion batteries which are commonly used in modern “green” vehicles.

According to Reuters, Russia accounted for 44% of Germany's nickel imports in 2020, which means manufacturers such as BMW and Volkswagen could feel the immediate effects of a supply disruption.

With other key metals used in vehicle manufacturing also facing a supply crisis, those in a market for a car will likely face increasingly higher prices. 

“Either consumers will pay more for cars, or if automakers can't pass it on they'll have to find cost savings somewhere else,” Chris Blasi, Chief Executive of precious metals dealer Neptune Global, told Reuters.

After the U.S. announced that it was considering a ban on all Russian oil exports, the price of Brent Crude rose to almost $140 a barrel, according to Reuters. Under two weeks ago, the commodity rose to $103 a barrel immediately after Russian President Vladimir Putin’s invasion of Ukraine.

Rupert Thompson, Chief Investment Officer at Kingswood, explained that this continued increase in commodity prices will not ease immediate inflation fears.

“All this [a rise in commodity prices] will exacerbate the current surge in inflation and delay its eventual decline,” he said.

“While the core inflation rate (which excludes food and energy prices and is the primary focus for central banks) should be impacted much less than the headline rate, these price gains will inevitably fuel worries of a wage-price spiral,” Thompson continued.

Still, while the war will exacerbate the cost of living, he believes it is unlikely to derail an economic recovery if it does not “spiral out of control”.