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.
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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 forced exploration teams to shift to more challenging locations like 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 2015, the world’s three top nickel producers were the Philippines, Russia and Canada. The Philippines produced 530,000 MT, while Russia and Canada both put out 240,000 MT of the metal. Australia and Indonesia also produced significant amounts of nickel in 2015, with Brazil and China, among others, falling more distantly behind.
It’s worth noting that just a few short years ago Indonesia was a much bigger supplier of nickel than it is now; however, at the start of 2014, the country’s government banned exports of direct-shipping ores of nickel. The move prompted a brief price spike, but it quickly subsided.
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.
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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.
At the moment, oversupply is again a concern, though this time it’s more related to China. Last month, Reuters’ Andy Home pointed out that “massive” LME stocks currently exist, while there is also a “surplus piling up in China.” Those factors recently pushed nickel to US$7,900, its lowest point in almost 13 years, and some fear its fall could continue.
Investor takeaway
For investors interested in the nickel market, the above information is only the beginning. However, what’s clear is that right now China is a key factor to watch. As Home aptly put it, “surplus metal is still accumulating, meaning that even if supply starts contracting, the impact will be deadened by stocks overhang.”
He added, “the overhang is no longer building in the LME system. It’s building in China.”
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Related reading:
10 Top Nickel-producing Countries
Nickel Price Forecast 2016
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