BALTIMORE, MD -- To the surprise of no one the U.S. Government is losing money. But this time it's not in the usual ways.
While it is a given that your tax dollars will be wasted on various government boondoggles and bridges to nowhere, the government is now also losing money at the very business of making money itself.
In a recent letter to Congress the U.S. Mint warned the membership that "Higher zinc, copper and nickel prices are raising production costs of the nation's coinage"
As a result, the manufacturing cost of a nickel now exceeds it value. At a cost to produce of roughly 5.73 cents a piece the U.S. Mint now loses nearly a penny every single time it sells a nickel to the Federal Reserve.
Now a penny a nickel loss might not seem like much. But when you crank out money the way the federal government does those pennies have a have a funny way of adding up.
Get this -- Mint officials estimate that added expenses in coin production will reduce the Mint's profit this year alone by $45 Million!
And higher nickel prices in the future could deepen this loss even further.
But Uncle Sam is not alone. Others too have begun to feel the pinch of higher nickel prices.
Nickel is, after all, up sixfold from its cyclical lows in late 2001. Falling supplies and soaring demand have spurred the rally.
Recently, in fact, nickel spiked to a record $29,600/metric ton on the London Metals Exchange. This was up dramatically from last year when nickel averaged just $14,738/ton.
This rise, however, has not been wholly unexpected.
Falling nickel stocks themselves have exacerbated the rise in prices.
As the following chart clearly demonstrates, falling nickel warehouse stocks have plunged since the first of the year.
On Friday they fell even further on the LME to their lowest level since May 2005.
Big Pharma's Survival Strategy
$7.5 billion a year in research and development is simply too big a pill for Big Pharma to swallow.
That's why they're buying out their breakthroughs for pennies on the dollar.
And their biggest target right now... is one I'm guaranteeing with my own money.
Learn all about it right here.
At present roughly 6,582 metric tons exist as warehouse stock. Of that over 3,822 tons has already been earmarked for delivery leaving just 2,760 tons available to the market.
Since global nickel consumption averages about 3,500 tons per day, this fall in supply has created an extremely tight market near term for the metal. Take a look:
This tight market has created a classic imbalance in supply and demand. As a result prices have soared to premium levels as the following chart illustrates.
This imbalance should continue.
In fact, in a recent conference call, Inco Ltd, the world's 2nd largest nickel producer, revealed that the company is turning away nickel orders from customers. Their own inventory has fallen to 3,840 tons below the company's ten year average for the second quarter.
More telling is the company's forecast for the remainder of the year. Amazingly the company is forecasting a 30,000 ton supply deficit for 2006.
Company spokesman Peter Goudie further related that the 2006 market was "the tightest nickel market we've ever see."
But while supplies are forecasted to be tight, predicted demand knows only one direction -- Straight up.
This is primarily because the massive demand for stainless steel continues to skyrocket. Led by China, world-wide stainless steel production has roughly tripled in the last fifteen years. Since roughly 70% of all nickel mined is used its production, nickel stores will be pressed to their limits as a result.
Canadian Province Says "No" to Coal...
You thought the U.S. Government was intrusive?
Right now, Canada's new "Green ATF" is closing down coal/oil power plants all over British Columbia...
While funneling over $30 billion to companies of their choosing to pick up the slack.
Find out here which company will more than double in size as coal and oil are switched off.
These nickel laden stainless steels continue to be high demand and have become the metal of choice in architectural applications, food processing, water desalination, aircraft manufacturing and the pharmaceutical business.
To meet these ever increasing demands current Chinese forecasts predict that its own stainless production will rise 40% this year consuming 218,000 tons of nickel alone.
But stainless steel is not nickel's only use. It is also heavily used in the rechargeable battery business. These nickel cadmium batteries power tools, computers and other mobile electronic equipment. With the arrival of improved battery technology the use of these nickel containing batteries continues to be an area of growth.
Nickel is also even also being seen as a low cost substitute for platinum in promising new fuel cell technology.
These compelling market forces can mean only one thing-higher nickel prices.
These higher nickel prices will certain translate in higher bottom lines by the companies that mine the ore. Inco(NYSE: N), BHP Billiton (NYSE: BHP), Falconbridge(NYSE: FAL), along with most smaller producers will all profit from these imbalances.
But as nickel prices head higher for the short term one thing is certain: An investment in nickel will likely translate into dollars.
The mint might lose some dough as a result but your portfolio is sure to prosper.
- Steve Christ
Subscribe to