[Bloomberg Column] 175-Year Pricing Rule Breaking in the Metals Market

There have long been rules in the commodities market considered to be almost laws of nature. For over two millennia—from the time of King Croesus of Lydia to the 19th-century gold standard—the value of gold remained about 15 times that of silver.

A similar "law" has existed between nickel and copper. Since industrial-scale nickel mining began in earnest in the mid-19th century, nickel has consistently traded at a higher price than copper. However, this price relationship, once seen as immutable, is now on the verge of breaking. Nickel is mainly used to produce stainless steel for cutlery and home appliances, while copper is indispensable for wiring in electric vehicles, data centers, toasters, and washing machines.

Since nickel began trading on the London Metal Exchange (LME) in 1987, its price has averaged about 2.85 times that of copper. But in recent weeks, this ratio narrowed to a record low of 1.17 at one point. It is possible that the price gap has already been reversed at the mine site. Copper miners may now be earning more per ton of metal sold than nickel miners in Indonesia.

To understand why, it's necessary to examine the actual forms in which nickel is produced and traded. Globally, the largest share of newly produced nickel is not the high-purity nickel traded on the LME, but nickel pig iron (NPI). NPI is lower grade but suitable for steel companies making stainless steel. Currently, Indonesian mining companies, which dominate the global NPI market, receive about $14,500 per ton, based on the nickel content in NPI.

Copper miners, likewise, sell not refined copper but "concentrate," a processed copper ore, to refineries. Refineries usually pay miners the LME copper price minus smelting and refining charges as well as other adjustments. Recently, however, these charges have turned unusually negative. This is because refineries can earn additional profits by separately extracting and selling trace metals and various byproducts from the concentrate.

Taking this into account, the actual price copper miners receive now reaches around $15,112 per ton—$612 more per ton than the roughly $14,500 Indonesian nickel miners receive.

This shift is driven by geology and changes in metal production methods. In the past, both nickel and copper were mainly produced from sulfide ore deposits formed by ancient volcanic activity, which contained high concentrations of nonferrous metals such as copper and nickel.

Globally, such deposits are not common. In recent decades, however, advances in smelting and processing technology have enabled the development of Indonesia's vast nickel laterite deposits. In these areas, millions of years of high temperatures and rainfall have concentrated nickel deposits near the surface. Laterite deposits are generally cheap to mine. This is also why bauxite (aluminum ore) and iron ore—formed in similar geological environments—have long remained among the cheapest major metals.

In contrast, the copper sector has seen no corresponding breakthrough in supply. The grade of copper ore has been declining for decades. Meanwhile, mining companies have been more focused on buying and selling existing mines than discovering new ones. While this has benefited banks advising on mergers and acquisitions, it does not create any new copper production.

However, some specific factors are at work behind the current copper-nickel price inversion. The negative copper smelting charges show that concentrate supply has become so scarce that refineries are willing to absorb additional costs simply to secure supply.

Chinese refineries, for example, are making up for the near-absence of smelting fees by extracting and selling byproducts like gold and silver from the concentrate. Recently, precious metal prices have reached all-time highs, allowing refineries to offer very favorable terms to miners.

Another unique factor influencing the current copper-nickel pricing relationship is the spike in sulfuric acid prices, a copper smelting byproduct. War in Iran has disrupted sulfur supplies from oil producers in the Gulf region, causing sulfuric acid prices to soar. Indonesian nickel producers, for their part, use large amounts of sulfuric acid in nickel extraction. Thus, the demand for sulfur needed in nickel production is paradoxically boosting byproduct revenues for copper refiners.

In the commodities market, such sharp price shifts are often moderated by subsequent changes in demand. Over the past decade, demand for nickel has grown much faster than for copper. Initially, rising demand for stainless steel led this growth, but more recently the electric vehicle battery sector—where nickel is a key material—has become a major demand driver. If this trend continues, the plentiful new nickel supply may ultimately be absorbed by the market, which could boost nickel prices again.

Nevertheless, copper's demand outlook appears far brighter than nickel’s. The International Energy Agency (IEA) diagnoses that the world is entering an "age of electricity." With the rise of clean energy, increased air conditioner installation, and the growth of data centers, the entire economy is becoming more dependent on power generation, grid infrastructure, and batteries. Copper stands to benefit at almost every stage of this electrification trend.

Nickel’s demand outlook is less clear. The high-nickel lithium-ion batteries that fueled Indonesia's nickel supply boom are now apparently losing ground to China’s new phosphate-based battery cells. If this shift continues, today's unusual copper-nickel price inversion may not be a temporary anomaly but could persist for some time.

Such transformations are not unprecedented in the metals market. In the 19th century, aluminum was so difficult to produce that it was more expensive than gold. Emperor Napoleon III of France flaunted his wealth by serving guests with aluminum tableware. But innovations in mining and smelting technology radically upended the situation. Aluminum, once costlier than gold, has become a common commodity used for drink cans and sandwich wrappers.

As such, the coming “age of electricity” could well turn nickel into a commodity as commonplace as aluminum.

David Fickling, Bloomberg Opinion columnist

This article is a translation by The Asia Business Daily of the Bloomberg Opinion piece 'A 175-Year Commodity Market Rule Is Starting to Break'.

※ Please note: This column was published as part of a strategic partnership between The Asia Business Daily and Bloomberg.

This content was produced with the assistance of AI translation services.