How To Invest In Nickel

Generally, the investment in nickel is a wager on the prospects of the manufacturing and industrial sectors which both use a lot of nickel.

How To Invest In Nickel?

Unlike investing in precious metals such as gold, nickel investments are much different.

The reason for this is due to the metal’s price moving with the economy, whereas precious metals typically move in the opposite direction to the state of the economy.

If you’re considering investing in nickel, you should contemplate using a financial advisor’s support. 

The demand for nickel is set to increase. Recently, the founder and CEO of Tesla, Elon Musk, commented on the requirement of nickel for electric vehicle production.

Whereby he was pleading with miners to increase their nickel output.

Similarly, another Tesla spokesperson noted that there is global underinvestment within the mining industry, with a shortage of these base metals on the horizon. 

The Nickel Market

Nickel is a key contributor to society’s development toward a more renewable future with electric vehicles and renewable energy.

It is also in a range of products including medical equipment, batteries, gas turbines, wind turbines, and mobile phones.

These days, you’ll find the most nickel produced for stainless steel.

Driving the nickel demand is electric vehicles and batteries. With a push towards more renewable energy sources, nickel is a key component in both wind and solar farms.

The World Bank released a report which discussed renewable energies’ future and the step’s towards it.

They highlighted that a transition would need to be nickel-intensive. In China, there is, and will continue to be, a large market for nickel mainly due to industrialization and urbanization. 

Nickel reserves can be found in Indonesia, Canada, the Philippines, Russia, and Australia.

However, there are some supply issues associated with nickel. For one, it takes many years for new nickel operations to come online.

Likewise, current nickel operations underway present very low rates of return. These factors increase nickel’s price volatility. 

Key Metrics In The Nickel Market

Nickel mining is known as a capital-intensive business. Few nickel miners are newly introduced as a result of huge entry costs and extremely high required capital investments.

Likewise, around the area of these mines, you will find a lot of pollution, both water and air, as a byproduct of them.

Therefore, capital investment is required to clean up this pollution, or, in best-case scenarios, to install technology to mitigate the pollution levels. 

Before investing in nickel, there are a few important factors to consider. For instance, if you’re investing in nickel mining securities, you should look out for high leverage ratios.

When ratios of debt to equity or debt to the asset are too large when compared with the remaining industry, it could lead to potential bankruptcy.

With low nickel prices, businesses can accumulate debt as a result of high required capital investments; therefore, the business may not produce adequate cash flow to accommodate this debt.

Due to nickel’s capital-intensive sectors, companies that mine nickel contain large levels of amortization and depreciation found on their financial statements. Another factor is depletion. These different factors decrease the net income.

Instead of simply relying on the net income, you should also examine the EBITDA and income statements.

The EBITDA presents earnings before taxes, amortization, depreciation, and taxes.

It paints another picture than relying on the net income as nickel mines tend to have more amortization and depreciation.

Examining the business’s debt to the EBITDA is important as it measures debts before removing any big cots. 

Types Of Nickel Investments

Types Of Nickel Investments

There are many different ways to invest in nickel, while some are direct others are indirect.

Indirect would include any business that produces processing and mining equipment, uses nickel for manufacturing, and provides transportation. Below, you will find direct routes. 

Options

Through purchasing options on the futures contract, you can invest in nickel.

If an owner were to decide not to fulfill their contract, they can walk away, only losing the money already paid into the contract.

These options pertain to a strike price, if the price were to exceed this they can exercise their option as they will remain in the money.

Futures

You can find nickel futures traded on London Metal Exchange. Due to the complexity of the future markets and commodities, casual investors may not want to get involved in this option.

Futures are considered derivative securities due to the value coming from underlying assets.

Once a futures contract is appointed to nickel, both seller and buyer need to fulfill the obligations.

Likewise, you should also consider storage costs and interest rates which may impact your nickel’s value.

If you’re interested in this option, a financial advisor will be able to help. 

Stocks

If you’re looking to invest in nickel stocks, most can be found in mining businesses.

However, before investing you should run the key metrics to establish the company’s viability, looking at its plans and history.

To go one step further, consider the environmental and corporate governance issues, as well as the nickel’s global economic outlook.

Then, examine the business rate within the sector, their prospects, and their historical performance. 

Bullion

The most direct way of investing in nickel is through nickel bullion in the form of bars or coins.

This requires a strong facility with scarcity measures for appropriate storage.

As a result of nickel’s values being low compared to its weight, you’ll need substantial storage to accommodate investing in nickel bullion.

Other options

To gain exposure to the nickel market, one of the best ways to do so is by investing in one of the two exchange-traded notes (ETNs) that are available.

These are issued by financial institutions and are debt instruments. Similar to zero-coupon bonds. 

Final Thoughts

Nickel is becoming a booming industry. However, like most investments, you must carry out your investments properly and safely. Hopefully, this guide has informed you on how to invest in nickel.

Luke Baldwin
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