December has been a quiet month for most equity benchmarks, with the week following Christmas living up to its reputation as one of the slowest of the year. But not all asset classes have gone into early hibernation. One of the most active assets in the final month of the year may also be one of the most obscure: nickel prices have surged in December as hopes for an uptick in manufacturing activity in the new year continue to build.
Nickel is best known as a primary ingredient in U.S. currency, but the metal has uses far beyond five cent coins. In addition to magnets and batteries, nickel is a critical component of stainless steel, tying demand for this metal to the broader health of the manufacturing sector. About 30% of global nickel supply comes from the Sudbury region of Canada, while Russia holds about 40% of the world’s known resources at the Norilsk deposit in Siberia.
Nickel has a history of wild price swings. Nickel reached a price of $1.47 per ounce in April 2007, prompting legislation prohibiting the melting of U.S. currency (the market value of the nickel reached about 9 cents). But prices plummeted by almost 80% during the economic downturn, and the incentive to melt down currency quickly disappeared.
Now nickel is on the rise again, as rebounds in demand from emerging markets and expectations of an uptick in domestic orders has sent prices for the metal soaring. The iPath Dow Jones-UBS Nickel Total Return Sub-Index ETN (JJN) has gained more than 55% on the year, including a 15% rise in December.
Nickel ETF Options
As an industrial metal, nickel is a component of the iPath Dow Jones-UBS Industrial Metals ETN (JJM), along with aluminum, zinc, and copper. But nickel receives a relatively small allocation in this product, which affords almost half of its weighting to copper.
The best option for investors looking for “pure play” exposure to nickel is JJN, which is linked to an index composed of a futures contract on nickel. While JJN is up more than 50% on the year, it remains more than 40% below its February 2008 level, indicating that there is still plenty of room on the upside for nickel prices.
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Disclosure: No positions at time of writing.