Nickel price bubble

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Intro => Amir

Présentation de la problèmatique, secteur choisi, présentation des auteurs, méthode choisie pour l’étude.
Jérémie secteur energie
Ludovic – Métaux (aluminium – acier)
Airy – Métaux (acier)
Amir – Emballage

Nickel sector presentation :

Nickel is a very particular material, even in the genesis of its name. By paying attention, we can recognize the “old nick”. Germanminers found very strange, diabolic the fact they couldn’t isolate this metal, associated for them with copper !
The nickel industry belongs to the sector of commodities. Indeed Nickel is a non ferrous metal used as alloying element for stainsless steel mainly (60 to 65%)[ref 1,2], then other alloys (22%) [3], electroplating (8%) [3], chemicals (5%) [3] and batteries. Although nickel is largelypresent on earth, at the 5th position in term of abundancy, the mineable resources are limited. The production is concentrated today in several country: Russia, France through Neo-Caledonia, Canada, Australia, Cuba. In 2007, the production of primary Nickel was 1.454.000tm [2], for a demand estimated at 1.32 million tonnes [1]. 6 major companies (NORILSK-22%-, CVRD/INCO-21%-, BHP-13%-, XSTRATA-11%-,JINCHUAN-9%-, ERAMET-7%-) are responsible for 83% of the world production.

Classically the nickel is extracted from sulfide nickel ore deposits. For 2006, nickel laterites use has been developed to balance the supply and demand, as shown in the graph 1 below.

Graph 1 : Nickel supply versus Consumption

One ofthe key point of this mining industry is that an increase of the supply is only possible through large investment and several years, up to 10-15, after the project launch [5]

As many other materials, nickel price is available on a daily basis via the London Metal Exchange, the world’s premier non ferrous metals market. The LME manages also a certain amount of nickel stockpile, buying someoverproduction and selling some stock in period of supply shortage : it is said to be a market of last resort.

Graph 2 : LME nickel price and stockpile evolution 2006-2010
Source :, with LME datas

As a major constituent in steel, the demand for nickel is pulled by the chinese need, which accounts now for 25% of the world demand.

The price volatility of nickel is high.Nickel experinced 3 highs in the last fifty yeras : in 1969, in the late 1980s and in may 2007.

What is a Bubble Price and why it occurs ?

As a general definition, « A bubble is a period when investors are attracted to an investment irrationally because rising prices encourage them to expect, at some level of consciousness at least, more price increases. A feedback develops – as peoplebecome more and more attracted, there are more and more price increases. The bubble comes to an end when people no longer expect the price to increase, and so the demand falls and the market crashes »[1].
There are numerous academic papers discussing whether certain episodes are, or are not, bubbles and there is no consensus in the litterature. All bubbles involve a rapid price rise and thenfall. « A bubble occures when prices keep rising only because they are expected to keep rising rather than based on fundamentally supportable values »[2].

This leads to another essential feature of the bubbles – the presence of speculative rather than fundamental reasons for investing. What draws our eye to many bubbles is that, when viewed from a dispassionate distance, thejustifications given for investment seem very weak. The rapid collapse suggests the presence of people in the market who require the price to go up in order for them to continue to buy or hold the asset – in other words, speculators.
Furthermore, they typically occur in an environment of general optimism, for example, at the end of a long expansion. Commonly associated with these price changes, but not...