Research Notes

Global nickel prices continue their ascent on the back of major conflicts simmering within the industry and fears of insufficient nickel supply. Overall, the situation could play into the hands of nickel producers worldwide and significantly boost their market values. We advise investors to buy into Norilsk Nickel (GMKN) and YuzhUralNickel (unkl).

Nickel prices have been sharply on the rise since early 2007, surging 7% in the past two days to $33,650 per ton (three-month contract) on fears that the global market might soon face a nickel shortage. For the record, nickel outstripped all other traded metal commodities (+155%) and hit $34,400 per ton in 2006.

In our opinion, the ongoing labor disputes at nickel producing companies are partly attributable to the soaring price environment, since, for instance, the world's largest iron nickel producer Eramet announced a 27% decline in its output due to a strike that has been going on for the past three months and another key player, Indonesia-based Inco, envisions production slump in January 2007, as well.

We expect that the nickel shortage will spill over well into 2007 on rising demand for stainless steel (which accounts for the bulk of global nickel consumption) and limited nickel supply.

The upturn in nickel prices is likely to positively impact the value of nickel companies.

We recommend investors to stock up on Norilsk Nickel and YuzhUralNickel's shares with target prices of $180 and $560, respectively.

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Nataly Kocheshkova

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