Annual Average Nickel Price
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 price-
control 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).
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