Russia Would Divert Nickel Sales to China on Sanctions

Nickel from Russia, the world’s second-largest producer of the refined metal, would be shipped to China in the event of U.S. and European Union trade sanctions, according to a survey by Bloomberg News.

Russian companies selling to Europe and the U.S. would switch to buyers in China, the largest consumer of nickel, said eight out of 12 nickel producers, traders and analysts in the Asia-Pacific region. Punitive measures would increase global prices at least in the short-term, said eight respondents.

Russia took over Ukraine’s Crimea Peninsula last month, sparking the worst tensions since the Cold War. The EU and U.S. have warned of tougher sanctions as pro-Kremlin troops gather at Ukraine’s borders. OAO GMK Norilsk Nickel, the world’s biggest producer of the metal, accounts for 17 percent of global refined output, according to Morgan Stanley. About 46 percent of China’s refined nickel imports come from Russia, making it the country’s biggest supplier, according to Chinese customs data.

“Norilsk will be able to sell their metal to China if the U.S and EU impose strong trade sanctions on Russia,” Xu Aidong, an analyst at Beijing Antaike Information Development Co., said in Beijing on April 1. Xu has studied the metals industry for two decades.

China imported 77,527 metric tons of refined nickel from Russia last year out of a total 168,190 tons, according to customs.

Norilsk Chief Executive Officer Vladimir Potanin said on March 20 his company is “reasonably prepared” to deal with sanctions including using a wider variety of currencies for transactions and taking “steps in the near future in Southeast Asian markets.”

Best Performer

Nickel is the London Metal Exchange’s best-performing industrial metal this year after being the worst in 2013. The three-month contract gained 16 percent since the start of the year after Indonesia, the world’s biggest miner of the raw material, banned ore exports in January to encourage more domestic processing. The metal traded at $16,116 a ton at 11:27 a.m. in Hong Kong.

Trade sanctions combined with Indonesia’s ore ban could push nickel prices as high as $20,000, said Henry Liu, head of commodity research at China Merchants Capital Management in Hong Kong. If the ore ban continues, the price will average $17,000 next year, according to a forecast published April 1 by Deutsche Bank AG.

The U.S. House of Representatives cleared a measure April 1 authorizing sanctions against Russian officials following Russia’s annexation of Crimea.

Individual Restrictions

The U.S. and the EU implemented individual restrictions in March against Russian officials and high level figures such as Gennady Timchenko, co-founder of commodity trading company Gunvor Group Ltd.

Output in China of nickel pig iron, a lower-grade substitute for refined nickel made using laterite ore chiefly from Indonesia, is expected to fall 21 percent to about 380,000 tons this year, according to Beijing Antaike. Producers face dwindling Indonesian ore supply and government pressure to curb pollution.

Russia’s refined supply could fill the gap left by reduced NPI production in China, according to Kazuhiko Saito, a Tokyo-based analyst at commodities broker Fujitomi Co.

China’s nickel demand will rise 9 percent this year after the nation consumed 897,000 tons in 2013, according to a Barclays Plc report on March 26.

China accounts for 25 percent of global nickel supply, according to Macquarie Group Ltd., mostly through NPI production.

To contact the reporters on this story: Alex Davis in Hong Kong at adavis150@bloomberg.net; Jae Hur in Tokyo at jhur1@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net Jarrett Banks

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