How to Invest in Nickel
Nickel is one of the oldest known metals with uses tracing back more than 5,000 years. It is often confused with silver due to its white shine but the metal has different properties in a few key areas. One of the most important differences is it that nickel is one of only a handful of elements that remain ferromagnetic in moderate temperatures making it a popular choice for magnets. Nickel generally is mined and the vast majority of the world\’s supply comes from two places; a mine in Ontario Canada and another one in Siberia, Russia.
Nickel has a number of industrial uses across a wide range of sectors. Two of its most popular uses are in nickel steels which account for 60% of the metal\’s use and nickel-copper alloys which account for another 14%. Nickel is generally prized for its anti-corrosive properties which makes a great compliment in steel production as well as in currencies. In fact, many are likely most familiar with the metal thanks to its use in U.S. coinage system and the five cent piece, the nickel. Although the coin is just 25% nickel today it is still one of the biggest uses of the popular industrial metal.
Investing in nickel has appeal thanks to its widespread use in industrial applications and its ability to serve as a hedge against the U.S. dollar and inflationary pressures in certain environments. For those looking to achieve physical exposure a few options are available in the form of bullion or bars as well as a physically backed ETF that trades on the London Stock Exchange. However, due to the metal\’s low value to density ratio costs can be high for storing large quantities. Due to this, some investors may want to consider purchasing stocks of companies that mine nickel instead. While many nickel miners also produce a number of other products as well there are a few pure play choices. Lastly, for those seeking to achieve exposure via futures contracts do trade on the London Metal Exchange while an ETN is available in the U.S. that holds futures contracts of nickel.
Ways to Invest in Nickel
There are 4 ways to invest in Nickel: ETFs, Futures, Physical, and Stocks. Click on the tabs below to learn more about each alternative.
What are Nickel ETFs?
Nickel is one of the metals included in many broad-based metals exchange-traded products, including DBB, JJM, and UBM. These products offer exposure to a basket of industrial metals, including copper, lead, and tin. For those seeking targeted exposure to nickel, the iPath Dow Jones-UBS Nickel ETN (JJN) may be an interesting choice; this note is linked to an index comprised of nickel futures. While JJN offers pure play exposure to nickel, it is important to note that it will not necessarily reflect changes in spot nickel prices, as the underlying assets are nickel futures and not physical metal.
International investors may have more options for nickel exposure through ETFs, as there are leveraged and inverse options trading on certain exchanges in Europe.
What are Nickel Futures?
Nickel futures are traded on the London Metal Exchange under the symbol NI. LME nickel futures contracts represent 6 metric tons of nickel, or approximately 13,000 pounds). The underlying nickel is of 99.80% purity (minimum) conforming to B39-79 (2004). Forms of deliverable nickel include Full Plate Cathode, Cut Cathodes, Pellets, and Briquettes.
LME nickel futures are priced in U.S. dollars per tonne, and clearable currencies include U.S. dollar, yen, pound, and euro.
Additional resources on nickel futures:
How to Buy Physical Nickel
Investors seeking to gain exposure to nickel can do so by simply buying the metal and storing it. Because nickel is relatively dense and inexpensive, however, storing nickel of any material value may be challenging.
There have been instances of people hoarding currency to gain exposure to copper. As recently as 2006, the nickel used to make U.S. five cent coins was worth close to seven cents. That prompted some to melt down the currency in an arbitrage activity. Under a law passed in 2006 it is illegal to melt coin currency, with violators facing up to five years in prison and $10,000 in fines.
How to Buy Nickel Stocks
One option for investors seeking to gain exposure to nickel involves buying stocks of companies engaged in the discovery and extraction of the metal. Because the profitability of these companies is tied to the market level of their products (i.e., nickel), these stocks will often move in unison with spot prices.
Many companies engaged in the mining of nickel are often involved in extraction of other precious and industrial metals, thereby diminishing the link between stock price and the value of nickel. Nickel companies include:
- Xstrata Nickel (XTA.L, XTA.S)
- Pure Nickel (TSX:NIC)
- Norilsk Nickel (RTS:GMKN, MICEX:GMKN, OTCBB: NILSY, LSE: MNOD)
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