Nickel Riddle

First, some history for today:

1923 – Firestone Tire and Rubber Co. starts production on the first commercial automobile balloon tire.

1792 – George Washington performs first presidential veto on an Apportionment Bill for the members of the House.

Last week, we talked about how the 2009 nickel coins (& dimes) are difficult to find and how the mint expects 2010 mintages to be low as well.

Here’s another riddle for the nickels.

Warehouse stockpiles of the nickel metal have recently decreased with an associated increase in the price per pound.

Will this supply and demand issue abate or will it become more of a problem at the time the US Mint needs more nickel metal?

Of related interest, in the US Mint’s 2009 Annual Report, they comment, “The compositions of five-cent, dime, quarter-dollar and half-dollar coins are codified by statute. Any authority to change the metal composition of these denominations requires legislative action.”

The US Mint already loses money on the nickel at lower base metal rates. If the nickel metal price remains high when demand increases for the five-cent coin could legislation be generated to change the metal content of the nickel coin?

It’s a question without an answer at this point.

In 2007, the cost to make a nickel coin was $0.095 equating to a loss of $0.045 per coin. The cost that year was almost double the income, $0.05, for each coin.

In 2008, the cost decreased to $0.088, thus a loss of $0.038 per coin. In 2009, the cost per coin was $0.061 or a loss of $0.011 per coin.

Part of this decrease in cost per coin was the decrease in the cost of the metal, however toward the end of their fiscal year, the US Mint saw the nickel price begin to rise again.

The lack of supply currently helps drive the price up. One of the main reasons for the lack of stockpile is due to the lack of demand. Several mines cut their production of nickel dramatically due to minimal marketplace need. Now, mines are increasing their production. On the other hand, the Chinese market is increasing its domestic demand for stainless steel – one of the main uses for the nickel metal.

So, will the supply and demand curve continue to yield higher rates per pound? Or, will the supply and demand level out to stabilize prices? And what does this mean for the 2010 and beyond nickel production by the US Mint?

Again, no answers are immediate, but the nickel bears watching.

Here are some reference articles and commentary:

Stainless Steel News and Nickel Prices

Where Will Nickel Go Next?

Kitco’s Base Metals site including nickel, copper and zinc.