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Morning JAVA: Nickel Tanks While Cocoa Soars!

Morning JAVA: Nickel Tanks While Cocoa Soars!


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Remember when nickel surged to $100,000 per ton in March, 2022?

Two years ago and almost to the day, on March 8, 2022 I published 'Gold above $2,000 while nickel surges 250%'. A major short squeeze quickly sent nickel prices even higher, pushing the surge up around 500%, sending one of China's four biggest banks into default. The previous Friday, nickel traded at $24,000 per ton. The day before publishing this post, nickel shot to $48,000 per ton. On the morning of publishing, The London Metals Exchange (LME) halted nickel trading when nickel prices rose to a mind boggling $100,000+ per ton.

Keep in mind this was all occurring during and in the weeks after Russia went into Ukraine. Since then, the LME has faced multiple lawsuits from parties who had put in trades that were cancelled by the LME. It's believed the LME did this to save that Chinese bank from defaulting but on the other hand, the trade halt prevented traders from making legal profits. For this, the LME faces multiple lawsuits and its integrity is in tatters.

I noted in this article that two countries stood to benefit from nickel's surging prices, the Philippines and Indonesia. 2021 and 2022 were banner years for nickel production in these two countries. Nickel prices had retreated to about $30,000 per ton in mid-2022 but then something happened. The price of nickel began going down further. As of today, nickel prices are in the $17,400 range. That's quite a steep drop. What's going on here?

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As it turns out, Indonesia has the largest nickel reserves in the world and is on its way to producing 75% of all nickel by the end of this decade. They have a lot of nickel. Since at least 2022, Indonesia has been flooding the market with nickel, sending prices over a cliff. The result has been so severe to other nickel producers around the world that Australia alone shut down 6 nickel mines in 2023 as they became unprofitable.

BHP has now warned that its flagship nickel operation in Australia may shut down over the next few months. It reported shocking losses for the second half of 2023, an 86% year over year plunge. It is believed Indonesia's flooding of the nickel market will keep markets over supplied through the end of this decade.

Fortunately though, Australia has a lot of gold to make up the difference. Gold is back up above $2,050 at time of writing, a four week high. As for the Philippines, they might hurt a little from cratering nickel prices but like the Aussies, they are making up for it, not with gold but with cocoa production. Although they are not in the top ten, their cocoa production is growing annually. West African countries including Cote D'Ivoire and Ghana are the top cocoa producers in the world. West Africa is experiencing a severe drought which is decimating their cocoa crops. Cocoa prices have topped $6,000 per ton. Expect your favorite sweets to cost a little more in 2024!

Ironically, the third biggest cocoa producer in the world is... Indonesia with 667K tons of cocoa produced in 2022. Maybe we should be investing in this country? They have lots of nickel and cocoa to sell. I'm sure electric vehicle manufacturers are jumping up and  down with joy at retreating nickel prices since it's a major component in their batteries and they want to make lots of batteries, that's for sure.

Chocolatiers on the other hand, are panicking at skyrocketing cocoa prices. The largest maker of bulk chocolate, Swiss chocolate maker 'Barry Callebaut' has just announced 2,500 job cuts, amounting to 19% of its workforce. They should give the Philippines a call. They might be able to help.

 

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SweptOverNiagara
SweptOverNiagara

Name's Joe and I live in Ontario, Canada. I like writing on a wide variety of topics. I enjoy keeping track of markets, investing and commodities and the crypto sector. Also do some coding for web browsers.


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