In commodity markets, certain truths can be taken as self-evident.
asserted
truths → take → markets
Gold consistently cost about 15 times as much as silver for more than 2000 years, from the time of the Lydian king Croesus to the 19th-century gold standard.
asserted
Gold → cost → standard
Sharp movements in the ratio between copper and oil prices are often taken by traders as indicators of seismic shifts in the world economy.
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movements → take → economy
You can make a similar argument about nickel and copper.
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You → make → nickel
Nickel is mainly used in producing stainless steel for cutlery and appliances, while the latter is essential for the wiring in our electric cars, data centres, toasters and washing machines.
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latter → use → cars
Nickel has been priced at a consistent premium to copper ever since it started to be mined on a large scale in the mid-19th century.
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it → price → century
That seeming law of nature looks on the brink of breaking.
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law → seem → breaking
Nickel prices are struggling because when the world needed more in recent years, miners managed to unlock vast new resources.
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miners → struggle → resources
They performed a similar trick in previous decades with iron ore and aluminium.
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They → perform → ore
Copper, the indispensable element as the world electrifies, is proving far less tractable to the laws of supply and demand – hence its surge to a record price last month.
Since it started trading on the London Metal Exchange in 1987, nickel has averaged about 2.85 times copper’s price.
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nickel → electrify → price
Over the past few weeks, that’s slumped to about 1.11 times, the narrowest premium on record.
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that → slump → record
At the mine gate, the two prices may already have flipped: a typical copper miner can now receive more for a tonne of metal than an Indonesian nickel miner.
uncertain
miner → flip → miner
To understand why, you need to look a little into how these elements are actually produced.
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elements → understand → ?
The largest stream of newly mined nickel in the world isn’t the highly refined element traded on the LME, but nickel pig iron, or NPI, a low-grade product well-suited to the needs of steelmakers.
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stream → mine → steelmakers
At present, the Indonesian miners who dominate the trade are receiving about $14,500 a tonne for the metal contained in their NPI.
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who → dominate → NPI
Copper miners likewise sell concentrates rather than refined metal.
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miners → sell → metal
Smelters pay them the LME price, less processing charges and other adjustments.
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Smelters → pay → price
Extraordinary as it sounds, those treatment and refining charges have recently turned steeply negative, largely because the smelters are making money from extracting and selling trace metals and other byproducts from the concentrate.
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smelters → sound → concentrate
That implies a price for copper miners of around $15,112 a tonne – some $612 a tonne more than the nickel miners.
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That → imply → miners
What’s causing this change?
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What → cause → change
Geology and metallurgy explain part of it.
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Geology → explain → it
Most nickel and copper traditionally came from places where ancient volcanic activity helped generate sulfide ore bodies with high concentrations of base metals.
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activity → come → metals
Processing innovations in recent decades, however, have opened up vast new provinces of so-called nickel laterites in Indonesia, where millions of years of heat and rainfall concentrated deposits closer to the surface.
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innovations → process → surface
These laterites tend to be cheap to mine – one reason aluminium and iron ore, ultimately derived from similar landscapes, have long been the cheapest of major base metals.
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aluminium → tend → metals
Copper has had no comparable revolution.
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Copper → have → revolution
Ore grades have been declining for decades, and miners these days seem to prefer buying each other’s deposits to discovering new ones.
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miners → decline → ones
This has been a boon for mergers and acquisitions bankers, but it creates no new metal.
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it → create → metal
Those negative treatment charges for copper are indicative of a market where smelters are desperate to get their hands on concentrates at any cost.
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smelters → get → cost
Chinese processors supplement wafer-thin treatment fees by recovering gold, silver and other byproducts.
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processors → supplement → gold
Record precious metal prices are probably encouraging them to strike extraordinarily generous terms with miners.
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prices → encourage → miners
At the moment, this may even be helping to drive the relationship between the two metals.
uncertain
this → help → metals
Sulfuric acid is another copper by-product, and prices have surged after the war in Iran choked off sulfur supplies from Gulf oil exporters.
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war → surge → exporters
Many Indonesian nickel miners use vast quantities of the acid to extract metal.
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miners → use → metal
As a result, sulfur demand for nickel processing is indirectly supporting the margins of copper smelters.
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demand → support → smelters
In commodity markets, such upheavals can often be tempered by countervailing shifts in consumption.
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upheavals → temper → consumption
Nickel demand has grown far faster than copper over the past decade, driven first by stainless steel and then by nickel-rich EV batteries.
asserted
demand → grow → batteries
Should that continue, the recent additions to supply might all get used, pushing prices back up.
uncertain
additions → continue → prices
The demand picture for copper looks more bullish, though.
asserted
picture → look → copper
The world is entering the “Age of Electricity,” according to the International Energy Agency, as clean energy, air conditioners and data centres route more economic activity through generators, wires and batteries.
uncertain
energy → enter → generators
Copper will benefit from this shift at almost every turn.
asserted
Copper → benefit → turn
…and 9 more, not listed.
The Aporia
