Nickel
What is Nickel?
Nickel is a naturally occurring element on our planet, with the symbol Ni, and atomic number 28. It is found on our planet in its native form (created on our planet), and in its meteoric form i.e. coming from space.
What do we do with it?
It is corrosion resistant, meaning it is used for coating money such as coins: one and two-euro coins, 5 cent, 10 cent, 25 cent, and 50 cent US dollar coins, and the 20 pence, 50 pence, 1 pound, and 2 pound British coins all contain nickel. For the same reason, nickel is also used to plate industrial equipment, such as chemistry equipment.
It is also one of 4 ferromagnetic elements, with iron, cobalt and gadolinium, meaning we use it in magnet production.
Overall, about 70% of world nickel production is used for stainless steel. Another 20% is used in other industrial alloys — there are about 3000 nickel containing alloys in everyday use, 10% is used for plating as we saw, and about 4% is used for batteries, including electric vehicle batteries.
Where do we get it from?
More than 2.7 million tonnes of nickel are mined per year, with Indonesia, Philippines, Russia, New Caledonia, Australia, and Canada being the largest producers.
As a component of electric batteries, nickel will play a key role in the growth of electric vehicles and mobile devices of all kinds — anything that uses a battery really. The consultancy Roskill, which focuses on metals markets, predicts nickel demand to grow at 4.4% per year this decade.
What is the trade?
Remember, 70% of the world’s nickel is used in stainless steel. This material is used across industries from architecture, to water systems, food and beverages, vehicles, medicine.
The reason people are actively following this material is its use in the fast growing battery sector. First and foremost in electric vehicles, which are expected to experience a huge increase, and second, in batteries of all kinds for all the electronic devices you see around you, whose number and use are also expected to vastly increase.
Indeed, Elon Musk, the CEO of Tesla, is known to have said that “Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way.”
How to invest:
The Brazilian public company Vale is the largest producer of nickel in the world, representing about 10% of global annual production, followed by Russia’s public company Norilsk Nickel, and Australian mining giant and public company BHP Billiton.
The problem we have here is that each of these 3 companies is a very large mining conglomerate, for who nickel represents only a small part of total revenues. As such, when you invest in them, you invest in all the different natural resources they sell, and not just nickel. None of them is a “pure nickel” investment. While Russia’s Norilsk is far more focused on nickel than Vale or BHP Billiton, it is a stock listed in Russia, meaning that if you want to invest in it, you have to invest in rubbles and take currency risk, while also taking emerging markets risk by investing in a company entirely exposed to its Russia operations. What you want is exposure to nickel, not to Russia as a country, nor to the Russian currency.
Small companies focused on nickel i.e. more “pure investments” include Blackstone Minerals (ASX:BSX); Talon Metals Corp (TSE:TLO), Canada Nickel Company (CVE:CNC), Horizonte Minerals PLC (LON:HZM), Corazon Mining Ltd (ASX:CZN), Legend Mining Limited (ASX:LEG), Galileo Mining Ltd (ASX:GAL), Chase Mining Corporation Ltd (ASX:CML), and FPX Nickel (TSXV:FPX).
However, as you know, I always avoid small natural resources companies, which often represent literally one single mine. Their stocks are hugely volatile and their projects can be rendered non viable for long periods of time by a fall in prices. Unless I am ready to follow a commodity in depth, and follow a specific company in depth, I do not invest in single natural resources companies.
A good way to invest in nickel is by investing in the iPath Bloomberg Nickel Subindex Total Return ETN (ARCA: JJN). This product is composed of nickel futures i.e. its price rises and falls with the price of nickel in the near future. Listed on the NYSE, it was launched only in 2018, and for now remains small with a market capitalization of 17.5 million USD. Its expense ratio is low at 0.45%, and while one can expect liquidity to not be great, if you are a long term investor in nickel, and you are well diversified as you should always be, this should not be too big of an issue for you.
Let’s see what this instrument has done since its inception, until today:
What do we see?
A lot of volatility, as is common with natural resources, and with a price range going from 43 (lowest point) to about 72 (highest point) over this period.
While we see periods where your investment could have decreased in value for over a year at a time, there is a clear overall upward trend in price, with gains of about 30% over the past 3 years.
If you are optimistic about the growing demand for nickel, and can stomach volatility and possibly seeing your nickel portfolio be below your buying price for periods of a year, then this is an instrument you can consider.
