Did you know that it costs more to mint a nickel than the nickel is worth? If President Barack Obama gets his way, the materials used to make our coins could be changing. If it does, it could have implications for the exchange traded note (ETN) that tracks the metal.
According to Elizabeth Williamson of The Wall Street Journal, it costs nine cents to mint a nickel and two cents to mint a penny. In these tough economic times, the United States could do well with an extra $100 million per year by using different materials to create these coins. That’s why President Obama has suggested tinkering with America’s small change.
However, his proposal has been met with fierce opposition. Opponents worry that cheaper materials will promote counterfeiting, force small businesses to replace their coin-operated machinery and reduce the value of our currency.
But there are other things going on that could determine the performance of nickel in the short-term:
- The reason behind the discrepancy in actual value and face value of the nickel is simple supply and demand economics, reports Tony Daltorio of Investment U. According to Daltorio, the price of nickel has jumped about 45% year-to-date. That amounts to $27,500 a ton. Most industry insiders expect nickel to top out at $30,000 a ton.
- The main driver behind the price spike is the growing demand for stainless steel, which accounts for two-thirds of nickel demand. Veteran nickel and stainless steel analyst Heinz Pariser expects a 16% increase in stainless steel mill production from 2009.
- In addition to growing demand, a long-running strike at Vale’s Canadian operations, which accounts for 10% of global output, has put a constraint on production. However, with the Vale plant set to resume full production in the second half of 2010, and a wave of new mine production in the works, there should be some modulation in the supply and demand of nickel.
Whether you’re bullish or bearish on nickel, you can use iPath DJ-UBS Nickel TR Sub-Idx ETN (NYSEArca: JJN) to invest in it. Note, though, that it’s getting close to dropping below the 200-day moving average.
Here are some other metal ETFs you may want to consider if you’re interested in playing base metals:
- First Trust ISE Global Copper Index (NASDAQ: CU)
- iPath DJ-UBS Copper TR Sub-Idx ETN (NYSEArca: JJC)
- PowerShares DB Base Metals (NYSEArca: DBB)
Sumin Kim contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.