Nickel prices over the past few years have shown a huge surge buoyed by the concerns of declining global stocks. Strong global demand growth coupled with low inventories has lead Nickel to 15 to 20 year annual average peaks.
Fuelled by the fast developing infrastructure sector, Nickel is expected to continue its peak run. Like gold and silver, Nickel has emerged as an investment device providing vast opportunities for the investors.
Nickel is a metal with bright future as it is the main alloying metal needed to produce certain types of stainless steel. Nickel-containing materials make major contributions to many aspects of modern life. Nickel finds its usage in various industries such as engineering, electrical and electronics, infrastructure, automobile and automobile components, packaging, batteries, etc.
As an alloying metal, the uses of nickel are extraordinarily diverse. Its high melting point and resistance to corrosion have provided a wide scope for the metal's development.
Early in the 20th century, it was discovered that by combining nickel with steel, even in small quantities, the durability of the steel increased significantly with regards to corrosion resistance and strength. This partnership has endured and the steel industry is now the single largest consumer of nickel today.
Major producers of Nickel are Russia, Australia, Canada, United States and Indonesia, representing over 70 percent of global production. The Sudbury region of Ontario, Canada, produces about 30 percent of the world's supply of Nickel. On the consumption side, China, Japan, US and the European Union are the major centers.
China is responsible for much of the Nickel demand, particularly its stainless steel manufacturers, since stainless steel production accounts for 70 percent for Nickel use. China's demand for stainless steel has generated a huge market for Nickel. Most of the analysts reckon that China's share of Nickel demand will rise to 33 percent by 2011, from 18 percent in 2006.
Primary demand for Nickel comes from the steel sector. As stainless steel output soars in and cutlery production goes into overdrive, the price of Nickel has hit new records in recent weeks.
Apart from the order from steel sector, growing demand for Nickel in the automobile industries and electronic sector has added flavour to the commodity's prices. Along with this, another major concern that has fuelled Nickel prices are the labour disputes in mining areas, limiting the supplies.
With supplies of the base metal dwindling to less than one day of global consumption, Nickel for immediate delivery recently broke through $50,000 a tonne on the London Metal Exchange. The chronic deficit in nickel is expected to reach 45,000 tonnes in 2008.
On April 23, 1979, Nickel future contracts were introduced for the first time on the LME. Today, LME prices are the principal pricing mechanism used worldwide by producers and consumers of Nickel.
The above chart indicates growth rate in LME Nickel Prices from the year April 23, 1979 April 27, 2007. LME Nickel prices, which hovered around $6500 per MT during the year 1979, have surged to an all time high of $50000 in the current year.
Contrary to popular belief, there is more to the Nickel futures market than just the precious few of gold, and silver. While the rally in Nickel has been going strong for over a year, these unheralded markets rarely capture the imagination of the average citizen the way that more glamorous products like gold or silver might.
Like many other commodities, Nickel has enjoyed strong global demand, opening up a new vein of potential opportunities for traders.
The bottom line is that Nickel is indeed one of the hottest commodities today. As this metal's global imbalance works to correct itself, prices should continue to stay high for many more years. With this, the suppliers that are bringing Nickel to market now and in the future are positioned to achieve good profits.
Harish Krishnamoorthy is research analyst, Commodity Online Research
