American investors are protected from the rise and fall of nickel

There is good news for the average US retail investor on the horizon. A balloon comes, և Joe Investor անգամ will miss the boom անգամ accident մեկ once. The two primary stories create the potential for short-term meteorological price increases that will only decline rapidly as macroeconomic forces and political issues are addressed. In a world full of financial instruments, global exchanges, commodities, from weather derivatives to technology indexes to silkworm futures, nickel base metal is unavailable to the average American retailer.

Ten years ago, nickel traded for about $ 11,200 a tonne on the London Metal Exchange (LME). Currently, the market is about $ 18,500 per ton. The 65% price increase is almost a perfect correlation with the GDP growth of the world’s five largest economies over the same period. In fact, it makes sense, because nickel is used in about 3,000 alloys that we come in contact with every day. The rapid rise in nickel prices this year is not related to global growth, but the subsequent collapse of nickel will be directly related to the slowdown in world GDP.

There are two main factors that currently drive nickel prices beyond their basic value. The first issue was not a surprise. Indonesia, the world’s second-largest producer of nickel, imposed restrictions on exports of unrefined ore this January. The act aims to boost Indonesia’s ore processing and boost domestic industrial development. Some concessions were made to companies whose new in-house projects are already underway, such as Freeport-McMoRan, but even their production is likely to be halved, according to their first-quarter earnings report. Finally, the world could see a drop in supplies of more than 8% in 2014 due to Indonesia’s policy.

The second factor that is currently driving nickel prices above their domestic value is the escalation of the political crisis in Ukraine. Russia produces about 16% of world nickel. It also produces nickel, which has a significant cost advantage over Indonesia due to the geological formations in which it is stored. Norilsk nickel predominates in Russian nickel production. Norilsk Nickel, like Gazprom, is almost a government-owned industrial company that will be shortlisted for the next round of NATO sanctions, as well as direct US sanctions on individual Russian companies and owners, especially through banking and tax controls.

These short-term supply concerns contradict the macroeconomic picture that continues to predict a global slowdown. The Organization for Economic Co-operation and Development (OECD) recently released its forecasts, calling for a decline in world GDP from 3.6% to 3.4%. This is the second projected decline in six months. China’s GDP could fall from 8.2% to 7.4%. This factor can not be minimized, given the five-fold growth of the Chinese economy over the past 10 years, which is largely responsible for the 50% increase in nickel prices over the same period. Ironically, Chinese production itself will be a contributing factor to the metal’s decline, as they are expected to increase their production by almost 50%, contributing to the 2014 world production of 1.85 million tonnes to about 500,000 tonnes. Finally, their increasing production efficiency will allow them to make a profit, even if nickel falls below $ 12,000 per ton.

Futures markets are based on the current delivery of goods at a price agreed at the beginning of the contract between the buyer and seller of the goods. Physical goods also have storage costs, along with insurance, to cover their cost in storage. This creates a pricing structure where the longest delivery times have the highest prices associated with the charges. This pricing structure is called regression. The opposite of this is “canon”. Contango occurs when the nearest price is higher than the previously mentioned price. This pricing structure represents a short-term supply shortfall.

The nickel market is currently in varying degrees of risk, according to LME charts. Nickel for current delivery now sells for about $ 18,450 per tonne, and for three months, nickel is slightly higher at $ 18,520. These prices make it easy to see that short-term price increases do not reflect the bigger picture of the market. Moreover, the lack of retail access to the LME by US investors makes it very difficult to trade on their stock exchange.

We have seen supply disruptions create similar situations here in the United States. Excess pricing amid “high market price” of domestic value is usually fueled by media speculation, which eventually flows into the US Main St. A separate US retail investor. Unfortunately, we have seen small traders jump in the news car, hoping to make money fast, only to sink the ship after turning around. These patterns are easy to see in the US futures market thanks to the Traders Liabilities Report, published by the Weekly Commodities Futures Trading Committee. This report tracks the actual purchase and sale of individual trading groups – trading, index, small speculators. We follow these reports religiously and use them to keep us informed of current industry prospects in their respective markets. At least this time the nickel bubble will not be filled with the money of the American summer vacation.