Following the historic rise in silver prices, there’s a new dynamic taking shape in another metal market. Indonesia has ordered its largest nickel mine to cut production as it seeks to raise nickel prices, which have been plagued by oversupply. Therefore, pure-play nickel exchange-traded fund (ETF) Sprott Nickel Miners ETF (NIKL) might be the fund to buy now.
Record Silver Rally
Before we get into the dynamics of the nickel market, we take a brief look at the dynamics that shot silver through the roof over the past year. First, the significant geopolitical tensions have led to silver’s rise in popularity as a safe-haven asset. Central banks have also increased their purchases of the precious metal, seeking to diversify their asset portfolios away from major currencies.
Moreover, the Federal Reserve has enacted a series of interest rate cuts, which has increased silver’s appeal as a non-yielding asset. The most important factor behind this surge has, of course, been the structural supply deficit, while industrial demand remains robust.
Current Dynamics in the Nickel Sector
We have seen what a supply deficit can do to a metal’s price amid geopolitical tensions that are pushing investors toward commodities. Nickel might face the same fate soon, as its oversupply recedes. Last month, the price of the metal surged as there was a flurry of investments in China’s domestic metals market. This has signaled a reversal of fortune for nickel, which has been plagued by oversupply and weaker-than-expected EV demand. However, while short-term cyclical factors remain, the long-term structural outlook remains positive.
Returning to the oversupply issue, it also appears to be improving. Indonesia, the world’s largest nickel producer, has recently ordered its largest mine to sharply cut output, which has led to prices climbing and extending a rally since late last year. The country has set a supply quota of 260-270 million tons of nickel ore this year, slightly above the earlier estimate but well below the 379 million tons targeted for last year. PT Weda Bay Nickel is set to receive a 12 million ton ore quota this year, down from 42 million tons last year.
Indonesia is seeking to lift nickel prices by curbing global surplus, after increasing production to about 65% of global supply, which has led to a price slump. This has also forced higher-cost rivals in Australia and New Caledonia to shut down.
About Sprott Nickel Miners ETF
The Sprott Nickel Miners ETF delivers focused exposure to nickel mining companies worldwide. It follows a specialized index that highlights firms engaged in nickel extraction, development, and related operations, giving investors direct access to this essential commodity sector.
Essential for electric vehicle (EV) batteries, renewable energy storage, and stainless steel, nickel sees surging demand. This ETF targets businesses heavily reliant on nickel revenue, enabling gains from the shift to sustainable technologies. Operated by Sprott Asset Management, it uses a replication strategy to track the Nasdaq Sprott Nickel Miners Index (NSNIKL), incorporating global equities from nickel explorers and producers to capitalize on sector expansion.
Over the past 52 weeks, the ETF’s price has surged 77.8%. The fund’s performance is tied to nickel demand for EV batteries and stainless steel amid clean energy shifts. It’s up 17.23% year-to-date (YTD). NIKL reached a 52-week high of $21.85 on Jan. 26, but is down 18.5% from that level. The ETF is trading above its 50-day and 200-day moving averages, indicating strong momentum.
Sprott Nickel Miners: Fund Stats
The Sprott Nickel Miners ETF has $86.01 million in total net assets as of Feb. 12, and a net asset value (NAV) of $18.90. Since its inception on Mar. 21, 2023, the fund’s NAV has increased by 17.1% cumulatively. Currently, NIKL’s price is 4.1% below its NAV. The pure-play nickel ETF has an expense ratio of 0.75%, which is essentially its management fee. NIKL has a trailing-12-month dividend rate of $0.40, which yields 2.19% at current market prices. The fund has the largest holdings in Indonesia, followed by Australia and Canada.
On the date of publication, Anushka Dutta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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