As Indonesia shuts one of the largest export market routes for the key industrial metal, we see non Indonesia exposed firms surge in the wake of rising prices.

• Nickel ETFs’ AUM climb to new highs as nickel prices come out of a three year slump
• AUM growth is driven by a mix of surging nickel prices and inflows
• Short sellers in Eramet have more than halved their positions in the last three months

Seeing a key cash commodity leave one’s shores to enrich developed countries has always been bittersweet for raw material rich emerging market countries. These economies, on one hand rely on income generated from exports to fund their development, but also yearn for a slice of the riches gained from processing and marketing resources.

While many countries are resolved to this state of affairs, Indonesia chose a different path in January when the country, the largest global supplier of supplier of Nickel ore, decided to ban raw exports, forcing companies to refine the product onshore. Although many market commentators expected the ban to be short lived, Indonesia’s scheme was bolstered in the subsequent months when several plans to build domestic smelters came to light as former exporters rushed to plug this supply gap. Many were expecting the ban to be transitory but the prospect of large FDI into the country may prove an irresistible temptation for Indonesian policy makers.

In the immediate term, the removal of the world’s largest producer has resulted in a surge in nickel prices, something which ETP investors have been keen to follow.

Nickel surges leads to large ETP inflows

The recent developments have seen asset inflows surge to new highs. Currently assets managed by the 16 ETPs which track the Nickel have jumped to $184m at the latest count, three times the number seen at the start of the year. Current AUM is nearly the record seen at the end of 2008.

While the current surge in AUM is in part driven by the recent buoyant prices for Nickel in the wake of the recent supply shortage, the recent developments have attracted plenty of new assets into the asset class. So far this year, ETPs tracking nickel have attracted over $87m of new assets, a new record for the asset class.

Leading the charge in the field is the ETFS Nickel ETF which has taken the lion’s share of new assets with total year to date inflows of $60m. The fund also leads the way in terms of AUM as it currently manages over $130m of assets. From a performance point of view, the early money which started flowing into the fund in the first weeks of January has returned over 25% as the funds NAV jumped to three year highs.

Shares surge

There are few “pure play” nickel names out there, as many nickel operations tend to roll up into large diversified operations such as Vale and Glencore, but the names that do have significant Nickel exposure have seen large jumps in their share price.

Largest of the pure play firms out there is Russian company Mmc Norilsk Nickel, which has largely been isolated from the recent slump in Russian shares as investors focused on the fact that the firm’s assets are based in Russia, away from the recent troubles in Indonesia. The firm has largely not been targeted by short sellers and its demand to borrow has fallen significantly since the start of the year. Analysts are forecasting Mmc’s profits to quadruple in the coming fiscal year.

The one firm to see meaningful short interest, French firm Eramet, has also seen short sellers cover in the face of rising prospects. Current demand to borrow Eramet is down to a third of the yearly high seen in March when many investors were expecting Indonesia to reverse the latest ban.