all about nickel and why it will keep going up

  1. 8,034 Posts.
    Significant events affecting nickel prices since 1958
    1966 Western Mining Corp. discovered nickel sulfide mineralization at Kambalda, Western Australia, triggering extensive
    exploration of the greenstone belts between Norseman and Wiluna
    1969 Canadian labor strike led to a severe spot shortage of nickel and a sixfold increase in the price of cathode
    1972 Falconbridge Dominicana C. por A. commissioned its ferronickel smelter at Bonao, Dominican Republic
    1977 P.T. International Nickel Indonesia (P.T. Inco) commissioned its Soroako mining and smelting complex on the
    Indonesian island of Sulawesi; laterite mining began in Guatemala
    1978-79 Labor strike in the Sudbury District of Ontario reduced Canadian mine output by more than 40%
    1979 Nickel became the seventh metal traded on the London Metal Exchange (LME)
    1981-82 A worldwide recession caused nickel demand and prices to fall sharply
    1987-88 The Government of the Dominican Republic levied a substantial export duty on ferronickel; Falconbridge
    Dominicana countered by limiting ferronickel shipments and declaring force majeure
    1987-89 Supply shortages; Stainless steel production in the Western World passed the 10-million-metric-ton-per-year mark
    1991 Dissolution of the Soviet Union followed by a sharp rise in exports of Russian nickel
    1993 Voisey’s Bay nickel-copper deposit discovered in northeastern Labrador by diamond prospectors
    1999 The Murrin Murrin laterite mine and two other pressure acid-leaching operations came onstream in Western
    Australia
    During the 17th century, German miners had difficulty
    processing certain copper sulfide ores because of an
    associated mineral that they called kupfernickel, or “Old
    Nick’s copper.” The troublesome mineral turned out to be
    nickel arsenide and is known today as “niccolite” or
    “nickeline.” In 1751, Axel Fredrik Cronstedt isolated a
    previously unknown chemical element from niccolite. This
    element was subsequently named “nickel.” Nickel was mined
    on only a limited scale until the large lateritic nickel deposits
    in New Caledonia came into production about 1875 (Boldt
    and Queneau, 1967, p. 61-65). The first nickel operations
    processed sulfide ores—primarily in Canada, Central Europe,
    China, Pennsylvania, and Scandinavia. Nickel had little
    economic or industrial significance until 1820 when Michael
    Faraday succeeded in making synthetic meteoric iron by
    adding nickel to pure iron. Faraday’s alloy was the forerunner
    of nickel steel, a family of ferrous alloys that continues
    to play an important role in industrial development. One of
    the first uses of nickel steel was for ordnance. Nickel-steel
    armor plate was first produced commercially in France in
    1885 (Hall, 1954). Competitiveness trials of nickel-steel
    armor took place in the United States in 1890-91, and within
    a few years, Bethlehem Iron Co. (forerunner of Bethlehem
    Steel Corp.) was producing large nickel-steel guns for the
    U.S. military (Wharton, 1897). The nickel steels developed
    before World War I contained only 1.5% to 4.5% nickel, with
    a carbon content of 0.2% to 0.5% (Hess, 1917). Other
    important early uses were bridge structures, railroad rails,
    axles, ship propeller shafts, and automobile engine parts
    (Cammen, 1928). The first commercial chromium-nickel
    steel—and one of the first grades of stainless steel—was
    made at St. Chamond, France, in 1891. Like nickel-steel
    armor, chromium-nickel-steel armor proved to be much
    superior to the carbon-steel plate then in use, triggering
    extensive production of the new type of steel (Hall, 1954, p.
    1-62).
    In the late 1990’s, stainless steel production accounts for
    more than 60% of world nickel consumption and is the
    primary factor in nickel pricing. Stainless steel is defined as
    an iron alloy that contains at least 11% chromium. Nickelbearing
    stainless steels are termed “austenitic”, a reference to
    their characteristic solid solution microstructure, and typically
    contain between 6% and 22% nickel—with 18% chromium
    and 8% nickel being the most common composition. In the
    Western World, total stainless steel production has grown at
    about 6.1% per year since 1950 (Inco Limited, 1998, p. 3-8).
    Since 1985, the austenitic share of Western stainless steel
    production has accounted for about 75% of total stainless
    output, the rest being ferritic or martensitic. In recent years,
    the austenitic percentage for the United States has ranged
    from 63% to 67% because its steel plants produce significant
    amounts of ferritic stainless for the North American automobile
    industry. Since 1970, demand for stainless steel in the
    United States has grown at a much faster rate than that of
    carbon steel but still constitutes only 2% of total U.S. raw
    steel production. For the next 20 years, stainless steel
    production is expected to continue to play a prominent role in
    determining nickel price levels.
    Like petroleum, nickel is a critical commodity in wartime.
    Nickel, as well as cobalt, is needed to make superalloys for
    engines that propel jet aircraft and guided missiles. Pure
    nickel is used in high-performance batteries, such as those
    that start jet engines or power satellites. Austenitic stainless
    steel and nickel-base superalloys are commonly used if
    chemical corrosion is a serious problem, such as on
    submarines and surface naval vessels or at food-processing or
    93
    petroleum-storage facilities. Merchant nickel prices
    traditionally spike in wartime when demand far exceeds
    supply and frequently rise in times of political unrest and
    instability. Producer prices, in contrast, have been frozen in
    several crises by war-production boards or emergency pricecontrol
    regulations.
    The Korean Conflict is a good illustration of price spiking
    and distribution controls. During the transition from a civilian
    to a defense economy, demand for nickel exceeded available
    supply even though North American nickel mines and plants
    were operating at full capacity. At the outset of the conflict,
    the U.S. Government took control of the distribution of
    nickel, and from 1951 to 1957, all nickel in the United States
    was under Government allocation. At the same time, the
    Government also acquired nickel for the national strategic
    stockpile. The combination of these actions resulted in a
    severe shortage of nickel for nondefense uses (Davis, 1956).
    Shortages continued throughout the conflict despite the
    addition of significant new production capacity in Canada and
    the United States and the rehabilitation of a number of older
    mines and plants. Moreover, the U.S. Government continued
    to purchase nickel for the strategic stockpile after the conflict
    ended. As a result, supply did not exceed civilian demand
    until the latter part of 1957, 4 years after the armistice. The
    producer price of nickel—tracking consumption—began a
    gradual rise in 1950 and did not peak until 1957. A period of
    oversupply followed, during which quoted producer and
    merchant prices for nickel approximately paralleled inflation.
    This situation produced a constant-dollar price for the metal
    that was fairly stable for more than 10 years.
    In 1969, the Canadian nickel, copper, and iron ore
    industries were shut down by a prolonged series of labor
    strikes. Canada was the dominant nickel-producing country
    in the world at the time. Canada’s two largest producers,
    Inco Limited and Falconbridge Limited, accounted for 48% of
    world production the previous year. Because of the strikes,
    Canadian nickel production was almost 20% less than that of
    1968 (Morrell, 1971). The strikes took place at a point in
    time when global stocks were low and world demand was
    restricted by available supply.
    The 1969 strikes affected nickel prices in two ways.
    Before the strikes, the major producers, led by the Canadians,
    controlled the nickel price. The short-term effect was a brief
    price increase. The long-term effect was to diminish the
    importance of the producer price. Canadian and non-
    Canadian producers accelerated efforts to expand existing
    operations and to bring greenfield projects onstream before
    prices weakened. Between 1969 and 1974, new mines and
    processing plants were commissioned in Australia, Canada,
    the Dominican Republic, and New Caledonia. The increased
    capacity resulted in a reduction of the Canadians’ share of the
    world market and, thus, their influence on prices—a turning
    point in the history of nickel marketing.
    In the mid-1970’s, Western Mining Corp. Ltd. (now WMC
    Ltd. of Southbank, Victoria) sharply expanded its mining
    operations in the Kalgoorlie region of Western Australia.
    Australia is now the third largest nickel producer in the world
    because of additional discoveries in Western Australia, the
    subsequent construction of a major natural gas pipeline from
    the North West Shelf to Kalgoorlie, and the advent of new
    extraction technologies (Government of Australia, 1999).
    Nickel prices, reflecting consumption, rose slightly from
    1970 until 1975, when the cumulative effect of opening
    several new production facilities began to be felt. In 1975,
    U.S. demand for nickel weakened, partially because of the
    termination of U.S.-led military operations in Vietnam. In
    1977, P.T. Inco commissioned its Soroako mining and
    smelting complex on the Indonesian island of Sulawesi,
    bringing additional metal into the marketplace. An oversupply
    situation and declining consumption caused prices to remain
    flat until the Inco strike of 1978-79. The strike at Inco's
    operations in the Sudbury District lasted from September 16,
    1978, to June 3, 1979 (Inco Limited, 1980, p. 4-9). Between
    February 1979 and the end of the year, Inco raised its Port
    Colborne price for cathode six times. The effect of the Inco
    strike on prices was compounded by the fact that major
    producers had been operating at 55% to 60% of capacity to
    reduce inventories and to improve the price situation.
    The Inco strike helped accelerate major changes in nickel
    pricing. In spring 1979, nickel became the seventh metal
    traded on the LME—marking a major turning point in pricing
    of the metal. Today, nickel prices are set by the LME rather
    than by the producers. Since 1979, nickel has become a
    commodity whose price is driven by world supply and
    demand, irrespective of production costs. Many consumers,
    as well as producers, were opposed to LME trading at the
    time. Most, however, would now agree that the LME is a
    practical and effective forum for establishing an international
    reference price for nickel, improving price transparency, and
    rapidly disseminating price data. It is difficult to say how
    much nickel, probably a small proportion, actually sells at the
    LME price. The LME price has more importance than
    appears at first glance because it is used as a reference price
    in long-term contracts. For example, a large nickel producer
    might ask for a premium to the LME price, and a smaller one
    might sell at a discount. Because of the LME, producer
    prices became irrelevant in the early 1980’s.
    The Second Oil Crisis (1979-82), triggered by the
    revolution in Iran, had a major dampening effect on world
    consumption of steel and most metals. The resulting
    recession that began in summer 1981 caused a marked decline
    in nickel consumption. Nickel demand in the Western World
    declined about 8% in 1981; this was the first time since the
    late 1940's that demand had declined for two consecutive
    years. The recession ended in November 1982, but prices
    continued to weaken until 1985 because of slackening
    demand. In 1987, the market suddenly changed direction,
    catching producers off guard. The annual average price
    surged from its lowest level ever in 1986 to its highest in 1988
    (in terms of 1992 constant dollars for the period 1910-97).
    94
    The monthly average LME cash price rose gradually from
    $1.60 per pound at the beginning of 1987 to $2.69 in
    November. In December 1987, it suddenly shot up to $3.48.
    The rapid increase continued in 1988, with the monthly price
    reaching $8.17 in April. These price levels would have been
    unimaginable to the nickel market 4 years earlier. Three
    factors were primarily responsible for the increase. The first
    was a substantial and unforseen increase in demand for
    stainless steel, the largest end use for nickel. More than 50%
    of stainless steel production in the United States and Europe
    is sold through service centers (companies that buy directly
    from a stainless mill and sell to customers). Service centers
    do not publish detailed sales statistics in terms of end use,
    making it difficult for stainless producers to monitor consumption
    of their product. The second factor was that nickel
    producers reduced world production capacity because of low
    metal prices during the early and mid-1980’s. At least five
    nickel producers closed operations during this period. A third
    factor was the decreased availability of stainless steel scrap.
    Although Western demand for nickel grew continuously
    between 1985 and 1991, the LME price peaked in 1988 and
    declined each year afterward until 1994. The reasons for this
    paradoxical trend were threefold—the former Soviet Union
    (FSU) began gradually increasing nickel shipments to the
    West, scrap availability increased worldwide, and world
    production of primary nickel increased.
    The breakup of the Soviet Union in December 1991
    produced massive changes in the Russian economy, one of
    which was the partial privatization of the largest nickel
    producer in the country, RAO Norilsk Nickel. At the same
    time, the downsizing of the FSU military-industrial complex
    caused nickel consumption within Russia to plummet. In
    1997, Russia consumed only 20,000 metric tons of primary
    nickel, compared with 180,000 tons in 1989 (International
    Nickel Study Group, 1998). Russian consumption weakened
    even more in 1998, slipping to less than 18,000 tons. These
    changes led to a surge of primary nickel from Russia, putting
    downward pressure on world prices for primary nickel and
    nickel-bearing scrap. Russian exports of stainless steel scrap
    and high-nickel scrap to the European Union (EU) also
    sharply increased, further depressing world nickel prices.
    Russia continues to maintain its position as the largest nickel
    producer in the world despite its difficult economic situation.
    More than 90% of Russia’s output currently (1998) comes
    from mines operated in the Arctic by Norilsk Nickel. Because
    of internal demands within Russia for hard currency and the
    depressed state of the Russian stainless steel industry, Norilsk
    Nickel is expected to continue exporting the bulk of its
    production to the West at least until 2005.
    The Russian situation, the current recession in Japan, and
    economic problems in other parts of East Asia have caused
    the monthly LME cash price to decline from $3.20 per pound
    in June 1997 to $1.76 in December 1998. Since 1997,
    Western nickel producers have had to struggle to cut costs in
    the face of weakening prices for the metal. Prices improved
    slightly in the first half of 1999, climbing back to the $2.25 to
    $2.50 level. The commissioning of three nickel mining and
    metallurgical complexes in Western Australia at the beginning
    of 1999 is, however, expected to put renewed downward
    pressure on prices. All three operations use variations of a
    high-pressure acid leach process to extract nickel and cobalt
    from limonitic laterite ores. The nickel is then separated from
    the cobalt by solvent extraction. Several analysts believed
    that the three Australian complexes will have low operational
    costs and will be extremely competitive because of their
    cobalt byproduct credits.
    Inco remains committed to the development of the huge
    Voisey’s Bay nickel-copper-cobalt deposit in northeastern
    Labrador (Inco Limited, 1999, p. 20-21). In December 1997,
    Inco submitted a comprehensive environmental impact
    statement on the proposed mine and mill to Canadian
    regulatory authorities. Since then, the Voisey’s Bay project
    has undergone extensive environmental and socio-economic
    scrutiny. In March 1999, a special panel overseeing the
    environmental review recommended that the project proceed,
    subject to a number of stipulations. Complex and lengthy
    negotiations are currently (1999) underway with the
    Provincial Government and other key stakeholders. The
    development of the deposit, which Inco acquired in 1995-96,
    is expected to have a major impact on the world nickel market
    sometime after 2003.
    Pricing Mechanisms for Nickel Metal
    On April 23, 1979, nickel contracts were introduced for the
    first time on the LME. Leading nickel producers at first
    stiffly opposed the LME pricing mechanism. Nickel business
    on the LME, however, steadily grew in spite of the
    producers’ opposition, convincing the producers to reverse
    their position. Producer participation has increased
    considerably since 1985 because of the LME’s hedging and
    options capabilities. Today, LME prices are the principal
    pricing mechanism used worldwide by producers and
    consumers of nickel. LME prices and archival statistics are
    available 24 hours a day at the LME website, thus minimizing
    arbitrage. LME prices are also quoted by day in a variety of
    weekly trade publications, including Metal Bulletin, Platt’s
    Metals Week, and Ryan’s Notes. In 1999, the LME pricing
    system had the support of nine of the larger nickel producers
    in the world. Five of the nine are Associate Trade Members
    of the Exchange—Inco; Falconbridge (through its principal
    shareholder, Noranda Inc.); Outokumpu Oyj of Espoo,
    Finland; Rio Tinto Plc. of London; and WMC. All five sell
    metal that meets LME specifications. Metal produced by
    Norilsk Nickel and the ERAMET Group—two other major
    producers—has also been approved for delivery on LME
    warrants, together with metal from Sumitomo Metal Mining
    Co. Ltd. and several smaller producers. QNI Limited of
    Brisbane, Australia—the ninth company—recently became a
    major player in the nickel market. QNI has ties to the LME
    95
    through its parent, Billiton Plc., but produces material unlisted
    on the LME: sintered-nickel rondelles, nickel oxide powder,
    nickel oxide granules, and ferronickel.
    The principal purpose of the LME since its opening in 1877
    has been to serve as a futures market, providing protection to
    producers, traders, and consumers alike against unpredictable
    price fluctuations (Rudolf Wolff & Co. Ltd., 1995). The
    LME has a membership of more than 100 firms. Of these,
    15 take part in Ring dealing, which consists of open outcry
    trading sessions that take place twice a day. Unlike other
    futures markets, the LME also serves as a center for physical
    trading and has an international network of approved
    warehouses. In the case of nickel, the bulk of the warehousing
    is done in the Netherlands at Rotterdam. The LME
    is regulated by the British Treasury under the Financial
    Services Act of 1985.
    Hedging, a form of insurance available to producers and
    consumers alike, is a key component of the futures market
    and reduces a producer’s exposure to price changes while the
    raw nickel is moving through different processing stages at the
    producer’s facilities. To guard against sudden price movements,
    the producer will hedge a planned physical transaction
    by entering into an offsetting forward contract on the LME.
    The forward contract is often designed to mature at about the
    same time as the physical sales date. Most hedged contracts
    are bought or sold back before they mature. Only about 5%
    of LME contracts result in an actual delivery.
    Speculators play an important role in futures trading
    because they bring liquidity to the market and assume the risk
    that the hedger is trying to avoid. Because metals speculation
    is a high-risk venture, only professional investors or
    institutions with sufficient capital to withstand the risk are
    normally allowed to participate. Option contracts give hedgers
    and investors more flexibility than a straight futures hedge.
    The option allows the hedger to lock in a contract at a fixed
    price but, at the same time, gives the hedger the flexibility to
    abandon the option if a favorable price movement occurs.
    Five different price series for nickel are available from the
    LME:
    • Cash
    • Settlement
    • 3-month futures
    • 15-month futures
    • 27-month futures.
    Prices are quoted at midday and at the close of the afternoon
    session. Metal Bulletin and Platt’s Metals Week also publish
    daily LME mean or index prices. The data shown in the
    accompanying table for the years since 1979 represent the
    annual average cash price.
    North American consumers have several other price series
    that they can use in contract negotiations. For example,
    Platt’s Metals Week and Ryan’s Notes compile and publish
    their own copyrighted prices. Three of the Metals Week
    prices most commonly quoted are New York Dealer Cathode,
    New York Dealer Melting Grade, and New York Dealer
    Plating Grade. The New York Dealer Cathode price closely
    tracks the LME cash price but is normally slightly higher
    because it reportedly incorporates insurance and freight costs
    incurred when cathode is transferred from LME warehouses
    in Europe to the East Coast. Prices for plating grades
    typically carry a premium of 15 to 25 cents (U.S.) per pound,
    and melting grade premiums are on the order of 5 to 15 cents
    per pound (Platt’s Metals Week, 1972-98).
    Pricing Mechanisms for Stainless Steel Scrap
    Nickel is less abundant than either chromium or iron in the
    Earth’s crust because of nickel’s higher atomic number and
    differences in the nuclear stability of the respective isotopes
    of the three elements. As a result, on an elemental basis,
    ferronickel is about 5 to 8 times more expensive than
    ferrochromium and 30 to 50 times more expensive than pig
    iron, depending upon the market situation at the time. As a
    rule of thumb, austenitic (Ni+Cr) stainless steel scrap is
    roughly three times more valuable than ferritic (Cr only)
    stainless steel scrap. Because the highest value material in
    austenitic stainless steel is nickel, stainless steel scrap prices
    closely track those of nickel cathode except when ferrochromium
    is in short supply.
    Almost all stainless steel produced in the United States is
    made in electric-arc furnaces. The majority of the stainless
    steel production facilities are in Pennsylvania. Nickel-base
    superalloys and other nickel-chromium alloys also are
    commonly made in electric-arc furnaces. The characteristics
    of the electric furnace permit the operator to use a large
    percentage of scrap, economizing on consumption of virgin
    chromium and nickel.
    The stainless steel scrap prices shown in the accompanying
    table were derived from daily data published by American
    Metal Market. The data represent consumer buying prices in
    the Pittsburgh, PA, area for austenitic stainless steel scrap and
    are quoted in dollars per long ton gross weight. The scrap is
    in the form of bundles, solids, and clippings typically
    containing 18% chromium and 8% nickel. Turnings of 18-8
    alloy are more difficult to handle than bundles and fetch only
    about 85% of the bundle price. American Metal Market also
    publishes estimated prices that a dealer, broker, or processor
    would pay for 18-8 scrap delivered to yards in 10 different
    areas of the United States plus the Montreal area of Canada.
    Although many types of nickel scrap are recycled in the
    United States, most is in the form of stainless steel. Stainless
    steel scrap currently (1999) accounts for about 85% of
    reclaimed nickel in the country. This includes scrap
    consumed in foundries in addition to that used in raw
    steelmaking. Scrap accounts for as much as 80% of total
    feed materials at some European stainless steel production
    facilities but typically 60% to 70% in the United States—the
    remainder being ferroalloys or virgin metals. The bulk of the
    scrap is conventional austenitic or ferritic stainless steel. The
    scrap is often blended and may include lesser amounts of low
    96
    alloy steel, superalloys and other high-nickel-chromium alloys,
    and/or specially-processed fines of high-carbon ferrochromium.
    A high scrap ratio (i.e., a high percentage of scrap
    in the total charge) reduces melting time and electricity
    consumption but makes final chemical adjustments to the melt
    more difficult. A few foreign mills have recently dropped
    their scrap ratio down to 30% or 40% because of problems in
    purchasing quality scrap at a reasonable price.
    Copper-nickel and superalloy scrap make up a large portion
    of the remaining 15% of nickel reclaimed in the United States.
    Aircraft engine manufacturers return turnings, chippings, and
    similar forms of prompt superalloy scrap to superalloy
    producers for remelting. Segregation of these materials by the
    engine manufacturers is absolutely critical. Because of quality
    control concerns, part of the obsolete superalloy scrap
    generated at aircraft engine repair facilities is downgraded and
    used to make stainless steel.
    References Cited
    Boldt, J.R., Jr., and Queneau, Paul, 1967, The winning of nickel:
    Princeton, NJ, D. Van Nostrand Co., Inc., 487 p.
    Cammen, Leon, 1928, Alloy steels, Chap. 6 of Principles of
    metallurgy of ferrous metals: American Society of
    Mechanical Engineers, p. 142-162.
    Davis, H.W., 1956, Nickel, in Minerals Yearbook 1953, v. I: U.S.
    Bureau of Mines, p. 837-853.
    [Government of Australia], 1999, Australian national statement:
    International Nickel Study Group, 9th General Session, [The
    Hague, the Netherlands], April 21, 1999, presentation, 2 p.
    Hall, A.M., 1954, Nickel in iron and steel: New York, John Wiley
    & Sons, Inc., 595 p.
    Hess, F.L., 1917, Nickel, in Mineral resources of the United
    States 1915: U.S. Geological Survey, pt. 1, p. 743-766.
    Inco Limited, 1980, Annual report—1979: Toronto, Ontario, Inco
    Limited, 41 p.
    ———1998, World stainless steel statistics: Toronto, Ontario,
    Inco Limited, October, 128 p.
    ———1999, Annual report—1998: Toronto, Ontario, Inco
    Limited, October, 81 p.
    International Nickel Study Group, 1998, World nickel statistics:
    The Hague, the Netherlands, International Nickel Study Group,
    v. 8, no. 11, November, p. 64-66.
    Morrell, L.G., 1971, The mineral industry of Canada, in Minerals
    Yearbook 1969, v. IV: U.S. Bureau of Mines, p. 163-181.
    Platt’s Metals Week, 1972-98, Metals Week price handbook:
    New York, The McGraw-Hill Companies, Inc.
    Rudolf Wolff & Co. Ltd., 1995, Nickel, chap. 15 of Wolff’s
    guide to the London Metal Exchange (5th ed.): Surrey, United
    Kingdom, Metal Bulletin Books Ltd., p. 127-133.
    Wharton, Joseph, 1897, Nickel and cobalt, in Eighteenth Annual
    Report of the United States Geological Survey, 1896-97: U.S.
    Geological Survey, pt. 5, p. 329-342.
 
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.