Nickel: A Bellwether For Copper?

By
June 22, 2011
Share:

 Is this year’s worst-performing LME metal a canary in the coal mine for copper? And is there any hope in sight for nickel prices?

 

Tolstoy once wrote, “Happy families are all alike; every unhappy family is unhappy in its own way.” He might as well have been writing about industrial metals.

Not two weeks ago, we took a hard look at tin, a market struggling to resurface under the weight of the lackluster economic recovery. For any industrial metals follower, the story should sound familiar—most metals have lagged similarly.

But the base metals sector is far from a happy family right now, and the bearish conditions plaguing each of the metals are not all alike. Take nickel for example.

Nickel used to be the superstar of the base metals scene: Prices struck a three-year high back in February of $29,425/tonne, rising since 2005 on the back of emerging market demand.

But since then, spot nickel has tumbled about 27 percent, and the metal has become year-to-date the worst performer on the London Metals Exchange (LME). In fact, nickel briefly touched its lowest price since last November on Monday, before closing at a yawn-inducing $21,650/tonne.

So what happened for nickel to fall so far, so fast?

Mine Supply Overwhelms Demand

Like a true Russian hero, nickel has become a victim of its own success.

In dollar terms, the nickel market’s overall value is closer to silver than gold, but it’s a hard metal to substitute. Nickel demand is primarily driven by stainless steel manufacturers, as it’s a key ingredient in producing this corrosion-resistant alloy. More than 60 percent of all nickel mined annually goes straight to the production of stainless steel, used in everything from cars to kitchen appliances to skyscrapers.

Naturally, the emerging market boom has been kind to the metal. Since 2005 or so, increased demand from China, Brazil and other developing markets has driven nickel demand sky-high.

But miners have had trouble keeping up with the pace of this new demand. Indeed, construction delays, technology setbacks and higher manpower costs have kept worldwide nickel production stagnant for years; from 2008 to 2010, nickel saw essentially no net growth in mine supply.

But the days of supply playing catch-up to demand are over.

ETF.COM CHANNELS

Interested in China? Use our China ETFs Channel, library, and ETF screener.

Interested in oil? Use our oil ETFs channel, library and ETF screener!

ETF DAILY DATA

The largest gold miners ETF lost assets on Thursday, April 28.

BlackRock's ETF assets gained $859 million on Thursday, April 28.

ETF.COM ANALYST BLOGS

By Drew Voros

With the broad equity ideas all taken, issuers look for thinner slices of exposure.

By David Lichtblau

How funds wash away capital gains through create/redeem process.

By Dave Nadig

End investors are the big winners; brokers—not so much.

By Dave Nadig

ETF industry petitions the SEC for market microstructure changes.

ETF INDUSTRY PERSPECTIVE

By Sprott Asset Management

New fund’s underlying index targets equities sentiment on social media.

By Kristi Kuechler

Avoid taking unrewarded—or unintended—risks.

By Vanguard

The investing giant outlines its expectations for the markets and global economy in 2016.