Nickel prices hit a one-month high this week as a strike at one of the world's largest nickel mines signaled reduced supply prospects.

According to BHP Billiton Ltd., its Cerro Matoso mine in northern Colombia is operating at less than full capacity following a breakdown in negotiations. The company has already sent force majeure notices to some of its customers to allow for missed deliveries.

Like Us on Facebook

Similarly, higher Chinese equity prices are boosting nickel prices, as hopes fly for further stimulus in the world's largest consumer of industrial metals like nickel. According to a Market News report, China's central bank is discussing adopting unconventional policies to reinvigorate is now slowing down economy, including making direct purchases of local government bonds from the market.

But in spite of positive developments within the nickel market, some analysts are warning that the nickel rally might be short-lived. Robin Bhar, metals analyst at SocieteGenerale, said, "We would need to see more evidence of a pick-up in demand or a tightening in supply, particularly in China, for this rally really to extend."

Commerzbank shares the same view, noting that the temporary closure of the Cerro Matoso mine can only temporarily boost nickel prices. "This is evidently driving up the price despite the fact that the global nickel market is amply supplied in our opinion," the financial services firm noted.

In spite of the claims of the International Nickel Study Group that global surplus would shrink about 20,000 tons this year because of the Indonesian nickel ore export ban, nickel supply hardly seems to be hurting at the moment. Supply from the Philippines continues to bridge the gap.

Likewise, nickel mining projects all over the world promise a continuous supply of the said metal, including Russian nickel miner Amur Minerals Corporation (OTC: AMMCF), which is simply awaiting the final approval of the Russian prime minister for its mining license in order to start production. According to latest estimates, Amur Minerals' Kun-Manie site contains 67 million tons of high grade nickel.

Only a few analysts predict huge supply holes in the market in the near term. According to Credit Suisse, nickel's "near balanced market in 2015" might slide into deficit next year, assuming higher cost nickel pig iron (NPI) production slows down. Mineweb says that if the price is to get better in the long run, a lot depends on NPI and whether producers curb production, given the current market prices. The market needs strong confirmation that these prices are loss making and pushing out production.

"For even the moderately bullish scenario to come to bear, it will be critical to see steel demand show signs of life this year-at least not drop off more than expected-in China and beyond," Mineweb said. "And of course, London Metal Exchange stockpiles, stubbornly high, should begin to retreat."

TagsNickel prices, Nickel supply constraints, BHP Billiton, Amur Minerals Corp, Nickel supply deficit