Nickelodeon

Nickel is used to produce stainless steel. This feature is also provided by chrome; therefore nickel may be substituted for chrome when prices diverge too much. 'Demand destruction' occurs when the price of a certain commodity rises too strongly so that market participants search for alternatives.

The Canadian nickel mine Sudbury, of the mining company Xstrata, delivers 5% of global production. The entire province of Ontario produces a third of the total world production.

Company dynamics

Xstrata is a British-Swiss company that is trying to catch up with the three largest mining companies on this planet, BHP Billiton, Rio Tinto and Anglo American. Xstrata acquired companies for $17 billion in total in 2006. It recently bought LionOre, number nine in the world's nickel market.

Cuba has 33% of global nickel reserves and recently decided to deliver this exclusively to China. Other main producers are Russia, Australia and Indonesia.

At the end of January of this year a huge container ship full of nickel ran aground and was stuck off the coast of England. The vessel was on its way to South Africa with thousand of tons of nickel.

Price hike

At the time, the cargo equalled 25% of the worldwide available stock (every day four thousand tons are consumed). Therefore this incident resulted in a huge price move in the nickel market.

The cargo will be transported off the ship, but this process can take a year or more. Financial markets are not that patient, unfortunately. Their participants, however, should be. Timing is the meanest aspect of investing.