How to Trade Nickel

Nickel Trading Header showing a mining excavator

Why is Nickel Valuable?

Nickel is a solid, lustrous, silvery-white metallic element that is strong, ductile, magnetic and resistant to corrosion. It also has a high melting point and catalytic properties.

These favorable traits make nickel one of the most widely used industrial metals on earth.

The earliest references to nickel date back to Chinese writings in 1500 BC. However, it wasn’t until 1751 that Swedish chemist Baron Axel Fredrik Cronstedt formally isolated and named the element.

Electron Shell of Nickel

Electron Shell of Nickel via Wikimedia

By the late 1800s, iron and steel manufacturers discovered they could strengthen traditional steel by creating alloys with nickel.

Discovery of new ore deposits in the early 20th century combined with strong demand for steel during World War I and World War II ushered in the modern nickel production industry.

Today mines worldwide extract more than 2.25 million tons of nickel annually.

In addition, recycling efforts account for additional supplies of the metal.

Over 300,000 products in the consumer, industrial, military, transport, aerospace, marine and architectural sectors use nickel. As a result, nickel has become an essential commodity in world markets.

How Is Nickel Produced?

The supply of nickel derives from two sources: primary production (mining) and secondary production (recycling).

Nickel Rim South Mine via Wikimedia

Nickel Rim South Mine via Wikimedia

Mining provides most of the supply, although the United States Geological Survey (USGS) estimates the quantity recovered from recycling in the United States represented 43% of total consumption.

Primary Production

Nickel derives primarily from two types of ores, sulfidic and lateritic. Each type has specific characteristics related to how it is mined:

Sulfidc and Lateritic Ore

 SulfidicLateritic
Ore BodiesPentlandite, pyrrhotite, and milleriteLimonite and garnierite
CharacteristicsUsually found with copper-bearing oresOres contain iron
Nickel ContentAbout 1%About 4%
Geographical LocationMostly in the Canadian Shield and SiberiaTropical regions such as New Caledonia
Deposit LocationDeposits are generally found deep underground.Deposits are generally found in varying depths just below the surface.
Mining MethodMiners sink vertical shafts into the ground and drive horizontal tunnels into the ore.Large equipment excavates the earth and removes the ore bodies.
Cost of MiningLabor-intensive and expensive to extractLess expensive since mining occurs at the surface.

Processing the ores and separating nickel from them also varies depending on the ore type.

Although sulfidic ores are more expensive to mine, separating the nickel from these ores is cheaper than extracting nickel from lateritic deposits. Additionally, sulfidic ores generally contain other valuable minerals that can be extracted during nickel production.

Nickel Extraction Diagram via Wikimedia

Nickel Extraction Diagram via Wikimedia

Sulfidic Ore Processing

Separating nickel from sulfidic ores takes place using froth flotation tanks and magnetic processes. These produce two products – nickel matte and nickel oxide. These intermediate products contain between 40 and 70% nickel, but each requires further refining.

Further processing of nickel matte occurs using the Sherritt-Gordon process. With this technique, hydrogen sulfide is added to the molten material to remove copper. This leaves a concentrate of only cobalt and nickel. Solvent are then used to extract cobalt. This leaves a final product with a nickel concentration of more than 99%.

Further processing of nickel oxide occurs using the Mond process. With this technique, nickel reacts with carbon monoxide at temperatures of between 100 and 175 degrees Fahrenheit to produce nickel carbonyl.

At this point, chemists obtain purer nickel from the nickel carbonyl through one of two processes:

  1. Nickel carbonyl passes through high-temperature chambers that decompose it into pure nickel.
  2. Nickel carbonyl passes through smaller chambers that circulate the material at temperatures of about 450 degrees Fahrenheit. This creates a fine, pure nickel powder.

Lateritic Ore Processing

The high iron content of lateritic ores makes smelting the preferred method of nickel extraction. Lateritic ores have high moisture content that requires drying the ores in kiln furnaces.

These kiln furnaces produce nickel oxide from the lateritic ores. At this stage, electric furnaces heat the nickel oxide at temperatures between 2,480 and 2,930 degrees Fahrenheit and produce Class 1 nickel metal and nickel sulfate.

Flash Smelting Nickel Furnace Illustration via Wikipedia

Flash Smelting Nickel Furnace Illustration via Wikipedia

The natural iron content of lateritic ores usually creates a final product after smelting that is ferro-nickel (a combination of iron and nickel). Steel producers can remove impurities such as silicon, carbon and phosphorous from this combination and produce strong steel alloys.

Secondary Production

Very little nickel is recycled to its original elemental state. Instead, scrap products are often recycled into economically valuable materials containing nickel.

For example, it is generally not economically feasible to extract the nickel from scrap stainless steel products. However, recycling these products allows manufacturers to create new stainless steel products that contain nickel.

The Philippines is the largest nickel mining country in the world. However, no single country dominates in production of the metal. Mining takes place in a variety of geographies and countries:

Biggest Nickel Mining Countries

Top 10 Nickel Mining Countries

RankFlagCountryThousands of Metric Tons
#1Flag of South PhilippinesPhilippines500,000
#2Flag of RussiaRussia256,000
#3Flag of CanadaCanada255,000
#4Flag of AustraliaAustralia206,000
#5Flag of new caledoniaNew Caledonia205,000
#6Flag of IndonesiaIndonesia168,500
#7Flag of BrazilBrazil142,000
#8Flag of ChinaChina90,000
#9Flag of Ivory CoastGuatemala58,600
#10Flag of CubaCuba56,000

These are the reserves of each country as reported by the USGS:

Which Countries Have the Most Nickel

RankFlagCountryThousands of Metric Tons
#1Flag of AustraliaAustralia19,000
#2Flag of BrazilBrazil10,000
#3Flag of RussiaRussia7,600
#4Flag of new caledoniaNew Caledonia6,700
#5Flag of CubaCuba5,500

Nickel is strong, ductile, magnetic, corrosion- resistant and heat-resistant. As a result of these favorable properties, nickel has become one of the most widely used metals in the world.

5 Main Uses of Nickel

UsesDescription
Stainless Steel
cutlery

cutlery
Nearly two-thirds of all nickel produced goes into stainless steel. A particular variety of stainless steel that contains significant quantities of nickel is austenitic steel. Many common products often contain austenitic steel:

- Automotive trim
- Cookware
- Cutlery
- Food and beverage equipment
- Industrial equipment
- Mining, chemical, cryogenic, and pharmaceutical equipment
- Storage vessels and pipes for corrosive liquids
- Sinks
- Tanks
Electronics
electronics
Iron and nickel alloys are used in many electronics.
Plating
wires
Electro nickel plating uses electrical current to cover conductive metals with a coating of nickel.
Catalysts
nickel element
Nickel is an important ingredient in many catalysts that facilitate chemical reactions.
Rechargeable Batteries
cutlery
Nickel is a key component in rechargeable battery systems used in electronics, power tools, transportation and emergency power supply.

What Drives the Price of Nickel?

The price of nickel is driven mostly by these five factors:

  1. Chinese Demand
  2. Global Stocks
  3. Global Demand Outlook
  4. Government Policies
  5. Input Prices

Chinese Demand

China accounts for more than half of the annual global demand for nickel. Only 10 years ago, Chinese nickel consumption represented less than 20% of global demand.

Rapid economic development in China over the past decade has certainly accounted for the increased consumption. However, China’s GDP growth has slowed considerably in recent years, creating doubts about future demand for all industrial metals including nickel.

Ultimately, nickel prices depend heavily on Chinese demand for everything from stainless steel products to batteries. If industrialization and urbanization in China renews its high growth trajectory, then price of nickel should rise. Traders should pay close attention to Chinese economic data for clues about nickel prices.

Global Stocks

The London Metals Exchange (LME) keeps track of global stock levels for nickel and other industrial metals. Traders follow these inventory levels closely for clues about supply shortages or surpluses.

If inventory levels drop, the market may be facing a shortage of nickel supply in the near future. This could lead to higher prices for the metal. Similarly, if stockpiling occurs and inventory levels expand, then the market might face an oversupply of the metal, which can lead to lower prices.

Nickel traders keep close tabs on Chinese inventories, in particular, since they have the largest impact on nickel prices. Data on shipping containers entering Chinese ports can provide valuable clues about demand for nickel and other commodities.

Global Demand Outlook

Overall economic activity, particularly in the industrial sector, affects demand for nickel.

The use of nickel in stainless steel alloys for building projects is a market segment that deserves close attention. Stainless steel nickel alloys are used to produce durable structures and protect against corrosion. The Great Bridge of China is one example of a construction project that used nickel.

Hangzhou Bay Bridge - China

Hangzhou Bay Bridge – China via Wikimedia

The United States has not invested in major infrastructure projects in decades. If the government earmarks funding for new infrastructure projects, the price of nickel could move significantly higher. Similarly, as other developed economies replace their infrastructure, nickel prices could rise.

Government Policies

There are numerous examples of government policies affecting nickel prices:

Historically, Indonesia has been a leading exporter of nickel. However, the country has also banned laterite ore exports in recent years. The rationale for this policy was a desire by the government to support the domestic smelting industry. Ultimately, budget deficits in Indonesia led to a resumption of exports.

The Philippines, the world’s largest nickel miner, has recently threatened to end all mining in the country.

Actions by these and other governments can have a dramatic effect on nickel supplies and prices.

Input Prices

Nickel occurs in ore bodies, and breaking down these ore bodies to extract nickel expends energy. Producing nickel requires ample supplies of coal, electricity and crude oil.

Mines and blast furnaces utilize energy to extract nickel ores from the ground and process it into nickel. These costs can have a big effect on primary production. Similarly, the costs of scrap metal can impact the price of secondary production.

3 Reasons You Might Invest in Nickel

Investors should consider buying nickel for the following reasons:

  1. Bet on Stainless Steel Demand
  2. Inflation and Weak US Dollar Hedge
  3. Portfolio Diversification

Bet on Stainless Steel Demand

Expanding global demand for stainless steel products could contribute to a rise in nickel prices.

China: The country continues to urbanize and industrialize its economy. Industrial and mining equipment, tanks, buildings and bridges are just a few of the applications where nickel could be used.

The United States: The United States is expected to embark on major infrastructure projects over the next several years. Bridges, railways, airports and other projects require major upgrades. All of these projects will require significant engineering resources, and nickel should play a role in building many of these projects.

Inflation and Weak US Dollar Hedge

Investing in nickel is a way to bet on a weak US dollar and higher inflation.

Nickel is priced in US dollars, so the performance of the American economy can impact its price. The US Federal Reserve Bank has kept interest rates low and the US dollar weak for many years.

US central bankers are likely to continue these policies to support consumer borrowing and spending. These conditions are likely to be very beneficial for all commodity prices including nickel.

A weak dollar could stoke inflation concerns.

There is a limited supply of nickel, and producing it is an energy-intensive endeavor. The price of the commodity would likely benefit from fears of inflation.

Portfolio Diversification

Most traders have the vast majority of their assets in stocks and bonds. Commodities such as nickel provide traders with a great way to diversify and reduce the overall risk of their portfolios.

Should I Invest in Nickel?

Traders who want to invest in nickel should consider purchasing the commodity along with a basket of other commodities that includes other base metals (i.e., copper, lead and zinc), precious metals, agricultural commodities (i.e., dairy, meats and grains) and energy.

Purchasing a basket of commodities helps protect traders from the volatility of any individual commodity. It also adds overall diversification to a stock and bond portfolio.

There are two specific trends that could raise nickel prices in the years ahead:

Chinese Demand

China is the top consumer of nickel and could increase its consumption in the years ahead. The Chinese economy has experienced a slowdown in recent years, although there are signs this may be coming to an end. Essentially, investing in nickel is a bet on a resurging Chinese economy.

Infrastructure Demand

Construction and infrastructure could represent a very large percentage of future nickel demand. The United States is planning large-scale infrastructure projects to replace dilapidated bridges, airports and transportation systems. Most of these projects will require large quantities of metals including nickel.

However, traders should also consider the risks of investing in nickel:

A global recession could weaken Chinese demand and put infrastructure plans on hold.
Overproduction of the metal or increased stockpiling by China could create a supply overhang on the market and send prices lower.

Global economic or political turmoil could strengthen the US dollar and weaken demand for commodities.

Expert Opinions on Nickel

Nickel expert Mark Pervan

Many analysts have a dour view of the nickel market. They cite overproduction from major producers Indonesia and the Philippines as reasons for their pessimism.

“Miners have been holding on as long as they can. They will be close to running out of wiggle room in terms of cutting costs. We need to see some reasonably sized refined capacity cutbacks to restore prices and confidence back to the market.”

Mark Pervan, consultancy AME Group, Sydney

Other experts agree that the current economic fundamentals of the nickel industry are unsustainable.

Consultant Wood McKenzie notes that half of global nickel miners now operate at a loss, while Citi recently informed its clients that it sees little chance for a rally in prices in the short, intermediate or long run.

How Can I Invest in Nickel?

Investors have several options for gaining exposure to nickel prices:

Nickel Trading and Investing Methods Compared

Method of InvestingComplexity Rating (1 = easy, 5=hard)Storage Costs?Security Costs?Expiration Dates?Management Costs?Leverage?Regulated Exchange?
Nickel Bullion1YYNNNN
Nickel Futures5NNYNYY
Nickel Options5NNYNYY
Nickel ETFs2NNNYNY
Nickel Shares2NNNNYY
Nickel CFDs3NNNNYY

Nickel bullion

Physical nickel bullion such as bars or coins is the most direct way to invest in nickel. However, investing in bullion requires a secure storage facility. Ultimately, the cost of this storage and the low value-to-weight ratio could make holding physical nickel an impractical proposition. Interestingly, the American nickel coin contains only 25% nickel and 75% copper.

Nickel Futures

The LME trades a contract on nickel that is a minimum of 99.80% pure. Each contract represents 6 metric tons of nickel and is quoted in dollars.

Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, the contracts are physically settled by delivery of the metal.

Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.

Nickel Options on Futures

The LME offers an American style options contract on Nickel Futures.

Options are also a derivative instrument that employs leverage to invest in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.

Options buyers pay a price known as a premium to purchase contracts. An options bet succeeds only if the price of nickel futures rises above the strike price by an amount greater than the premium paid for the contract. Therefore, options traders must be right about the size and timing of the move in nickel futures to profit from their trades.

Nickel ETFs

These financial instruments trade as shares on exchanges in the same way that stocks do. There are currently two exchange-traded funds (ETFs) that invest in nickel futures:

iPath Dow Jones-UBS Nickel ETNiPath Pure Beta Nickel ETN

Shares of Nickel Companies

There are many publicly traded companies that have some exposure to nickel prices. While investing in companies can be a leveraged way to gain exposure to nickel prices, many of these companies have significant exposure to other metals and commodities prices.

In addition, factors such as company management and the overall stock market can also affect these investments:

CompanyCurrent PriceOverviewListingsFoundedNumber of EmployeesInteresting Fact
Glencore
Glencore Logo
International commodity trading and mining companyLondon (LSE)
Hong Kong (SEHK)
Johannesburg (JSE)
1974154,832The Qatar Investment Authority is its biggest shareholder.
Pure Nickel
pure nickel Logo
Engages in the acquisition, exploration and development of mineral properties in Canada.Vancouver (VSE)1987Information not availablePure Nickel Inc received a court approved royalty payment, for previously earned royalties from the Milford Copper Property, of US $387,810.
BHP Billiton 

logo
Anglo-Australian multinational mining, metals and natural gas company.London (LSE)
New York (NYSE)
Johannesburg (JSE)
Sydney (ASX)
188560,000+The World's Second Largest Mining Company

CFDs

A novel and easy way to invest in nickel is through the use of a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of nickel. The value of a CFD is the difference between the price of nickel at the time of purchase and its current price.

Opening an Account with Plus500

Some regulated brokers worldwide offer CFDs on nickel. Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that trader can have exposure to nickel prices without having to purchase shares, ETFs, futures or options.

Plus500 logo

One of the leading brokers for trading agricultural commodities, like nickel, is Plus 500. Here’s why:

  • No commission on trades (other charges may apply)
  • Free demo account
  • Easy to use (mobile-friendly) platform
  • Industry-leading risk management tools
  • Trade natural nickel and hundreds of other markets
  • Your funds are safe – publicly listed company regulated by the UK’s Financial Conduct Authority and Cyprus’ Securities and Exchange Commission

Start Trading at Plus500.com Important: Your capital is at risk. CFD services are suitable for experienced traders only.

Further Reading

Lawrence Pines is a Princeton University graduate with more than 25 years of experience as an equity and foreign exchange options trader for multinational banks and proprietary trading groups. Mr. Pines has traded on the NYSE, CBOE and Pacific Stock Exchange. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts.
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