Ways to Invest in Nickel

Nickel supply: Deposit types and where to find them

Nickel ore 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 0.5 percent nickel or more contain at least 300 million metric tons (MT) of nickel; of that amount, around 60 percent is in laterite deposits and 40 percent is in sulfide deposits.

Each deposit type presents unique challenges to nickel mining. 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 notes that the discovery of sulfide deposits has long been on the decline, leading exploration companies to search in trickier 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.

In 2021, the world's top nickel producers were Indonesia, the Philippines, Russia and New Caledonia. Indonesia produced 1 million MT of the metal, the Philippines generated 370,000 MT, Russia's output totaled 250,000 MT and New Caledonia contributed 190,000 MT. Glencore (LSE:GLEN,OTC Pink:GLCNF) and Vale (NYSE:VALE) are two of the world's largest nickel companies.

While stainless steel still accounts for about 70 percent of nickel use, it's worth noting that nickel also ranks highly among battery metals and is widely used in the lithium-ion batteries that power electric vehicles (EVs).

The rise of EVs has led experts to predict that nickel will become one of Indonesia's biggest industries; it could even surpass palm oil, the country's second largest export. Forbes reported in 2021 that the country is on track to raise its share of worldwide nickel production from 28 percent to 60 percent by 2029.

Nickel demand: Infrastructure and electric vehicles

Once extracted, nickel ore is primarily used as a refined metal; as mentioned, more than two-thirds of the global market is put towards the production of stainless steel. The aerospace industry prizes refined 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, foundry products and plating.

As stainless steel is the largest source of demand for nickel, increasing nickel consumption is often 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 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. Nickel peaked at US$54,050 per MT in May 2007 after the market registered a deficit of 44,000 MT the previous year.

Going forward, nickel prices may also benefit from the metal’s use in EV battery cathodes as the world seeks to reduce carbon emissions in the battle against climate change. Although a small submarket for nickel today, global demand for the metal from the EV battery industry is expected to increase more than 40-fold by 2040, according to the International Energy Agency.

Nickel takeaway: Ways to invest

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

Nickel is included in many broad-based metals ETPs, including the Invesco DB Base Metals Fund (ARCA:DBB) and the iPath Series B Bloomberg Industrial Metals Subindex Total Return ETN (ARCA:JJM). These products offer exposure to baskets of metals, including copper, zinc and aluminum. For those seeking targeted exposure to nickel, the iPath Bloomberg Nickel Subindex Total Return ETN (ARCA:JJN) may be an interesting choice; this product is linked to an index of nickel futures.

Nickel futures themselves trade on the London Metal Exchange under the symbol NI. These 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.

Getting direct exposure by buying physical metal and holding it may be tempting, but it's worth noting that storing nickel of any material value would likely be challenging.

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