Investors interested in nickel investing need to have a solid understanding of supply and demand dynamics. Here’s a brief overview.
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 to have answers to those questions. After all, a solid understanding of dynamics in the space is key for making sound — and profitable — investing decisions.
Here’s a brief overview of the nickel industry, including where it’s found, which countries use it and what they use it for. Investors interested in nickel investing would do well to take a read.
This article continues below the Nickel Investing Table of Contents.
Nickel Investing Table of Contents
The articles listed below provide an overview of investing in nickel from Nickel Investing News.
- Nickel Trends 2019: Bright Year Brings Price Rise
- Nickel Outlook 2020: Deficit to Support Prices, EV Story Still Strong
- Top Nickel Stocks of 2020 on the TSX and TSXV
- 5 Top Nickel News Stories of 2019
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 1 percent nickel or more contain at least 130 million metric tons (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 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 locations such as East-Central Africa and the subarctic, which have more challenges.
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 2019, the world’s top nickel producers were Indonesia, the Philippines, Russia and New Caledonia. Indonesia produced 800,000 MT of the metal, the Philippines generated 420,000 MT, Russia’s output totalled 270,000 and New Caledonia contributed 220,000 MT to nickel supply. 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 electric vehicles 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.
Nickel demand: Developing countries key
Once extracted, nickel ore is primarily used as a refined metal; as mentioned, 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, nickel consumption 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 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 tonne in May 2007 after the market registered a deficit of 44,000 tonnes the previous year.
Nickel takeaway: Ways to invest
There are four ways investors can gain exposure to nickel: exchange-traded products (ETPs), futures, physical metal and nickel stocks.
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. 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 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.
This is an updated version of an article originally published by the Investing News Network in 2016.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.