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Nickel futures anyone?

2 November 2017

Nickel is an interesting and increasingly valuable metal.

There are many processes, materials and technologies which rely on nickel for their very existence and the increasing world-wide demand for this lovely metal with its silky lustre means prices are headed north.

One of the key uses for nickel is as one of the metals used to create metals such as stainless steel and the high-temperature alloys which are essential for jet engines, rockets and the like.

I recall back when I was making jet engines around 2000 or so, the prices of stainless steel and these high-nickel alloys were always going up -- almost on a weekly basis at some stages. The company from which I would regularly buy such materials was always quoting "the risking price of nickel" as the justification for these endless hikes.

And now there's another use for the metal which will place even greater strain on the supply, and therefore the price, of this often essential element.

I'm talking about electric vehicles and their batteries.

Nickel has always been a popular component of battery technologies. Many people will recall technologies such as nickel-cadmium (NiCd) batteries and, a little later, the nickel-metal hydride technology which is still popular today.

It should come as no surprise therefore that nickel remains a critical component of the ubiquitous 18650 lithium-ion cells that have rapidly been adopted by the EV industry, as manufacturers of many other devices, such as laptop computers.

Nickel prices really spiked around 2007, when they were at an all-time high of around $51,000 per tonne and right now they're "resting" at less than a quarter of that figure. However, the demand from battery producers saw a 17 percent hike over the past 12 months and this is a trend likely to accelerate as countries increasingly mandate a total conversion to EVs in the not-too-distant future.

It is interesting to note that the 2007 spike in price was caused by a couple of factors, both of which might point to the potential for investors to reap a dividend on futures that might be bought at this point in time. A decade ago, the predicted shortage of nickel had pushed prices sky-high, as various players stockpiled the metal as a hedge against future rises. Shortly afterwards, China (one of the biggest users) significantly ramped up its own internal mining and refining operations. This resulted in a significantly reduced demand from traditional sources and an over-supply situation that saw an almost 80% fall in value.

Another prediction of shortages today will almost certainly drive up prices but it is believed that China has no more production to bring online so those price increases are likely to be more robust over time.

As producers of high-quality, battery-grade nickel, our mates across the ditch stand to benefit significantly from this demand. Their rich nickel reserves could see them enjoying a windfall that will put little-old NZ at a disadvantage.

So do you rush out and buy nickel futures?

Or maybe neodymium futures (as I have previously suggested)?

Well, given that, like so many of our natural resources, we only have a finite supply and given that prices are very low (compared to previous levels), it might be worth throwing a few spare dollars into such futures, if you have no other uses for that money right now. Bear in mind however, that new (nickel-free) battery technologies could be just around the corner and if/when they arrive, we could once again see a slump in demand and price.

As is always the case -- the timing of buying and selling is crucial.

Note: this is not to be considered investment advice.

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