JJNTF - Nickel Market Basics: Supply and Demand Dynamics

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 getting involved in the market would do well to take a read.

Nickel market supply: Deposit types and where to find them

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 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. 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 to exploration companies searching 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.

The US Geological Survey states that in 2018, the world’s top nickel producers were Indonesia, the Philippines, Russia and New Caledonia. Indonesia produced 560,000 MT of the metal, the Philippines generated 340,000 MT while Russia and New Caledonia each contributed 210,000 MT to nickel supply.

While stainless steel still accounts for about 70 percent of the nickel market, it’s worth noting that, with the rise of electric vehicles (EVs), experts have marked nickel — which is prevalent in lithium-ion batteries — to become one of Indonesia’s biggest industries, with some saying it may even surpass palm oil, the country’s second largest export.

Nickel market demand: Developing countries key

Once extracted, nickel is primarily used as a refined metal, with two-thirds of the global market 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, EV 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 price of nickel 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. Ultimately, the price of 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 market takeaway: How to invest

There are four ways investors can gain exposure to nickel: 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), the iPath Bloomberg Industrial Metals Total Return Sub-Index ETN (ARCA:JJMTF) and the E-TRACS UBS Bloomberg Commodity Index Total Return ETN (ARCA:DJCI).

These products offer exposure to baskets of metals, including copper, lead and tin.

For those seeking targeted exposure to nickel, the iPath Bloomberg Nickel Subindex Total Return ETN (ARCA:JJNTF) 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 producers 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, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.