Sunday, December 08, 2019

Newton’s Law Aborts the Formative Nickel Mining Mania



Newton’s Law Aborts the Formative Nickel Mining Mania

The stock market’s breadth has so deteriorated such that even individual stock manias, expressed via price spikes and backed by tall tales, have become incredibly short-lived.

The upside spiral of nickel mining issues in September, mainly due to the ban on Nickel exports by the Indonesian government led to this conclusion.

To be clear, I am positive on the long term prospects of nickel mines, but current developments reveal the penchant of domestic markets to exaggerate pricing.


Newton’s Third Law of Motion, “For every action, there is an equal and opposite reaction”, has aborted a developing mania in nickel mining favorites.

Aside from plunging global nickel prices, the tumbling marketplace liquidity or lackluster volume has weighed on domestic miners.
 
Aside from the partial reversal by the Indonesian government on the ban on exports last November, which allowed for select miners, the crucial issue may have been the perceived bottoming of nickel inventories that have spurred a plunge in global nickel prices.

 
Nickel prices have dropped even before inventories may have hit the floor.

Neither has the huge gain in global nickel prices in the 3Q have filtered into Nickel Asia Corporation or NIKL’s revenues nor margins.

While Global Ferronickel Holdings or FNI’s margins posted significant improvements in the 3Q, surging nickel prices haven’t inspired a boom in output.

As Warren Buffett aptly stated, only when the tide goes out, do you discover who’s been swimming naked.

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