Nickel

Nickel is a high-luster, silver-white metal whose valuable applications have made it a significant and widely used material in the world today.

But where does it come from? And what exactly are those valuable applications? For investors interested in the nickel market, it’s important have answers to those questions. After all, a solid understanding of market dynamics is key for making sound — and profitable — investing decisions.

Here’s a brief overview of the nickel market, including where it’s found, which countries use it and what they use it for. Investors interested in getting involved in the space would do well to take a read.

Nickel market supply: Laterite and sulfide deposits

Nickel exists in the Earth’s crust in two main deposit types: laterite and sulfide. According to the US Geological Survey’s most recent report on nickel, identified land-based resources averaging 1 percent nickel or more contain at least 130 million MT of nickel; of that amount, 60 percent is in laterite deposits and 40 percent is in sulfide deposits.

Each deposit type presents unique challenges. For instance, sulfide deposits are found very deep in the crust, making extraction difficult. They also tend to be smaller than laterite deposits and often have variable grades. The US Geological Survey also notes that the discovery of sulfide deposits has long been on the decline, and “has led to exploration in more challenging locations such as east-central Africa and the subarctic.”

In contrast, laterite deposits are near the surface and thus are conducive to open-pit mining. They also offer more consistent grades and are usually larger than sulfide deposits. However, a potential downside to laterite deposits is that ore extraction involves leaching with acids at high temperatures.

Looking at where exactly these deposits are found, the US Geological survey states that in 2016, the world’s three top nickel producers were the Philippines, Russia and Canada. The Philippines produced 500,000 MT of the metal, while Russia put out 256,000 MT and Canada produced 255,000 MT. That said, it’s possible that the Philippines’ nickel output will slump in 2017 — at the beginning of the year, the country shut down or suspended production at dozens of mines due to environmental concerns.

It’s also worth noting that just a few short years ago Indonesia was a major nickel supplier; however, at the start of 2014, the country’s government banned exports of direct-shipping ores of nickel. In the first quarter of 2017 the ban was partially reversed. 

Nickel market demand: Developing countries key

Once extracted, nickel is primarily used as a refined metal, with two-thirds of global output being put towards the production of stainless steel. The aerospace industry prizes nickel for its resistance to corrosion, and uses it in spades as a component of superalloys. The metal is also used in coins, catalysts and chemicals, rechargeable batteries, foundry products and plating.

As stainless steel is the largest source of demand for nickel, nickel demand is largely fueled by developing countries in the midst of infrastructure expansions. Indeed, since the early 1990s, the nickel price has seen steep climbs and descents due to changes in economic growth.

For instance, the collapse of the Eastern Bloc at that time led to significant nickel oversupply and a plummet in the metal’s price that was not corrected until the early years of the 21st century. Ultimately, the nickel price reached a peak of US$52,179 per tonne in May 2007 after registering a deficit of 44,000 tonnes the previous year.

As of mid-April 2017, the nickel price was trading in the range of US$9,540 to US$9,725. While the metal’s price movement has been choppy since the start of the year, it is still up about 20 percent year-over-year. Some believe that choppiness will continue until “new fundamental price drivers, positive or negative” emerge, but others are more optimistic.

Indeed, analysts at FocusEconomics see the nickel price rising from that level going forward, partially due to the supply disruptions in the Philippines mentioned above. They also believe global demand will “remain solid thanks to greater U.S. infrastructure spending and robust demand from China.” US President Donald Trump’s $1-trillion infrastructure plan is largely behind hopes for higher infrastructure spending in the country.

Nickel market takeaway: How to invest

There are four ways investors can gain exposure to nickel: exchange-traded products (ETPs), futures, physical metal and stocks.

As CommodityHQ notes, nickel is included in many broad-based metals ETPs, including the Powershares DB Base Metals Fund (ARCA:DBB), the iPath Bloomberg Industrial Metals Total Return Sub-Index ETN (ARCA:JJM) and the E-TRACS USB Bloomberg Commodity Index ETN (ARCA:UBM). These products offer exposure to baskets of metals, including copper, lead and tin.

For those seeking targeted exposure to nickel, the iPath Bloomberg Nickel ETN (ARCA:JJN) may be an interesting choice; this note is linked to an index comprised of nickel futures. Investors interested in direct exposure to nickel may also want to consider buying physical nickel and storing it; however, it’s worth noting that storing nickel of any material value would likely be challenging.

Nickel futures are traded on the London Metal Exchange (LME) under the symbol NI. LME nickel futures contracts represent 6 MT of nickel, and are priced in US dollars per MT. Clearable currencies include the US dollar, yen, pound and euro.

Finally, investors can buy shares of companies engaged in the production, discovery and extraction of the metal. Some major nickel-focused companies trading on the TSX include First Quantum Minerals (TSX:FM), Lundin Mining (TSX:LUN) and HudBay Minerals (TSX:HBM), but there are many junior companies exploring for the base metal around the world.

This description was last updated on April 22, 2017.