Nickel has been used for thousands of years, but it was not classified as a chemical element until 1751. With an atomic number of 28, nickel appears as Ni on the periodic table in the wide central block that holds the transition metals, most of which are moderately hard, structurally sound metals. Nickel has catalytic properties and alloys readily, resists oxidation and corrosion, and is ductile, magnetic at room temperature, can be deposited by electroplating, and has a high melting point [for more commodity information and analysis subscribe to our free newsletter].
Nickel is the fifth-most common element on the planet; only iron, oxygen, silicon and magnesium are more abundant. While nickel is found extensively in the Earth’s crust, most of it is in the Earth’s core, making it inaccessible. Nickel is widely used in aerospace, architectural, consumer, industrial, marine, military and transport applications. The manufacturing of stainless steels accounts for about 65% of nickel production; aerospace and military applications use 20%; plating accounts for 9%; and the remaining 6% is used for coins, electronics and batteries.
Price Drivers
Ores of nickel are mined in more than 23 countries including Australia, Canada, Indonesia and Russia. In 2011, nickel demand grew to a record level of 1.572 million metric tons. Nickel prices exhibit significant volatility and have varied considerably over the last four decades. A number of factors affect prices, including the health of the overall global economy. Since stainless steel production represents about two-thirds of nickel use, the demand tends to be higher during periods of positive economic growth.
As with many other commodities, demand from emerging market economies has a tremendous effect on the price of nickel. Asia accounts for 65% of total global demand, followed by China at 44%, which only ten years ago represented just 8% of world demand. According to the International Nickel Study Group, the market for stainless steel is growing by more than 5% each year.
Mining activity also helps drive the price of nickel. Several new nickel discoveries have been made recently, and production from these new mines have increased the global supply of nickel, driving prices down. On the other side of the mining spectrum, supply disruptions can cause prices to increase. Strikes, natural disasters and geopolitical situations can lead to situations where demand is greater than supply, driving prices higher [see also The Ten Commandments of Commodity Investing].
Nickel ETFs
Investors interested in nickel exposure have a variety of exchange-traded products from which to choose, including futures-based nickel strategies and broad-based metals products that offer exposure to a basket of industrial metals.
- iPath Dow Jones-UBS Nickel Subindex Total Return ETN (JJN): The Dow Jones-UBS Nickel Subindex Total Return is a sub-index of the Dow Jones-UBS Commodity Index Total Return. JJN seeks to reflect the potential returns of an unleveraged position in nickel futures contracts, plus the potential interest rate on specified Treasury Bills. Launched on February 1, 2006, JJN is the best option for investors who want a “pure play” on nickel. It has an expense ratio of 0.75%, total net assets of $7.08 million, and a three-month average of 1,763 [see also Ultimate Guide To Copper Investing].
- iPath Pure Beta Nickel (NINI): The iPath Pure Beta Nickel ETN is linked to the Barclays Capital Nickel Pure Beta Total Return Index (the “Index”.) The Index is designed to track the potential returns of an unleveraged position in nickel futures contracts, and is comprised of a singled futures contract (except during rollover when there may be two contracts). The Index also reflects the potential interest rate on cash collateral invested in Treasury Bills. With an inception date of April 20, 2011, NINI has an expense ratio of 0.75% and total net assets of $1.28 million.
- iPath Dow Jones-UBS Industrial Metals Subindex Total Return ETN (JJM): The iPath Dow Jones-UBS Industrial Metals TR offers investors some exposure to nickel, along with aluminum, zinc and copper. It is a sub-index of the Dow Jones-UBS Commodity Index TR, and reflects the potential returns of an unleveraged position in physical commodity futures contracts, plus the potential interest rate on specified Treasury Bills. The Index is comprised of four futures contracts on industrial metals. With an inception date of October 32, 2007, JJM has an expense ratio of 0.75%, total net assets of $37.91 million and a three-month average volume of 4,789 [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].
- ETRACS CMCI Industrial Metals Total Return (UBM): ETRACS CMCI Industrial Metals Total Return exchange-traded note provides some exposure to nickel. It tracks the UBS Bloomberg CMCI Industrials Metals Index Total Return. The index measures the collateralized returns from a basket comprised of six industrial metals futures contracts, diversified across five constant maturities ranging from three months to three years. Metals include nickel, lead, copper, high grade copper, zinc and aluminum. With a fund inception date of April 1, 2008, UBM has an expense ratio of 0.65%, total net assets of $5.0 million, and an average daily trading volume of 2,904.
Buckle in for the Ride
Nickel is traded on the London Metal Exchange (LME) under the ticker symbol NI, and investors can also gain exposure to this industrial metal through a variety of exchange-traded products. ETF Securities, issuer of several popular physically-backed precious metal ETFs, has plans to launch a series of physically-backed industrial metal products, including separate funds for aluminum, copper, lead, nickel, tin and zinc.
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Disclosure: No positions at time of writing.
