Annual Average Nickel Price

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 ware-
housing 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 move-
ments, 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 ferro-
chromium 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
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