Five things to know about the 90% nickel price spike

That sounds dramatic, but you’re unlikely to notice the ripple effects of this on the wider economy over the coming year, and prices driven by a short squeeze like this tend to go up. calm down quickly. The rise in the price of nickel will not hit your pocket like the price of oil or wheat. Here’s why:

You don’t use a lot of nickel.

The American five-cent coin, despite its nickname, is made mostly of copper – nickel is only about a quarter of the alloy. About three quarters of the world’s nickel is mixed with chromium to make stainless steel, which in turn is mainly used in appliances, machinery and cutlery. Unlike crude oil, natural gas, wheat, rice, and soybeans, these metals aren’t consumed day-to-day — they’re only used when people make one-time purchases of discretionary goods.

When the price of food or energy increases, it has a lasting effect on the cost of living – and because we buy these products every day, we notice the difference. Politicians are considered out of touch if they don’t know the price of a bottle of milk. No one expects you to know the cost of a cutlery set from month to month, and only at the lowest point will the price of nickel make a significant difference to that number.

There are two types of nickel.

Nickel traded on the London Metal Exchange is known as Class 1 nickel, which must be at least 99.8% pure. But about half of the world’s nickel is less refined Class 2 metal, most of it in the form of products such as ferronickel and nickel pig iron that can be cheaply converted into stainless steel in Chinese smelters.

These two products in turn tend to be made by very different ores. Nickel sulfide deposits are ideal for processing into high-purity products like Class 1 nickel, but they are relatively rare and confined to a handful of locations in temperate countries. The booming market in recent years has been for Class 2 nickel, which is produced primarily from nickel laterite, a low-grade ore that is easily surface mined from weathered soils in Southeast Asia and in other parts of the tropics.

Russia accounts for only about 9% of the nickel supply, but it has almost a third of the world’s nickel sulphide ore. This gives the status of its exports an outsized impact on the price of Class 1 metal traded on the LME. This grade is also currently the most suitable for the production of nickel sulphate, a chemical which will become increasingly important in the coming years due to its use in batteries for electric vehicles.

Nickel is the most volatile metal.

Many metals are produced by relatively standardized methods. Almost all of the world’s aluminum has been made via the Hall-Heroult smelting process since the 19th century. This makes pricing relatively predictable, as there is only one technology to think about. Nickel is different, with a range of different end-use methods and sectors that interact in often unpredictable ways. Price swings are fundamental to the nickel market, with 90-day volatility over the past 10 years significantly higher than for other metals traded on the LME:

The potential to transform lower quality Class 2 nickel into a higher quality Class 1 product should, however, ensure that prices will realign over time. Once LME prices are north of $25,000 per metric ton, there is plenty of money to upgrade the Class 2 metal to a higher quality product. We saw something similar in the last spectacular nickel surge, when its price rose nearly fivefold in the two years to April 2007 before losing three-quarters of its value in the following two years as the rise in power of inferior ferronickel and nickel technologies robbed market share.

Stocks are low, but not desperately.

Most of the world’s trade in metals takes place outside of exchanges such as the LME through direct contractual relationships between a relatively small number of producers and consumers. The metal that goes to exchanges is usually a surplus product, which the same producers and consumers buy and sell to cover the prices they receive in the physical market, and offer a benchmark price against which they can compare these exchanges. . .

Traders pay close attention to stocks of metal held in exchange warehouses, as they are seen as evidence of the real tightness of the broader market. These stocks – particularly the metal in warrant available to traders – have fallen to historic lows. Yet, with 36,654 of metal deliverable to LME warehouses, we are well above where we were in 2006, when the 870 tonnes of global inventory might have been stacked on one side of a short tennis without exceeding the level of the net.

There is an ongoing nickel supply boom.

Another of the processing revolutions that periodically rock the nickel market is underway right now, as a swathe of Chinese factories start up in eastern Indonesia to process low-grade laterite ores into a with just the right qualities of nickel and cobalt for electric vehicle batteries. . This technology has not worked well in the past, but the scale of investment underway suggests that companies like Zhejiang Huayou Cobalt Co. believe they have cracked the code to profit from this activity. Unlike rare nickel sulphide deposits, laterites are abundant around the world. If that bet is right, we may have unlocked an important new source of supply, like we did with the nickel-smelting revolution a decade ago.

Commodity analysts see nickel trading below $20,000 a ton after the first quarter of this year and not climbing back above those levels until at least 2025. These forecasts often turn out to be wrong, but there prices are unlikely to stay near current levels for much longer. only a few weeks. Nickel is not a scarce commodity and we are producing more of it than ever before.

More from this writer and others on Bloomberg Opinion:

• Lithium is rare, but probably not for long: Liam Denning

• This Chinese miner could kill the battery metals boom: David Fickling

• How Chinese car batteries conquered the world: Anjani Trivedi

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.