Both molybdenum and nickel are used in the production of steel. Yet, the price of each has fared quite differently the last three months. Molybdenum has tumbled from a high of $18 to $12, hurting my previous favorite Thompson Creek (TC). In contrast, nickel has steadied at $8.69.
Why the difference in price trends? Could nickel be benefitting by strong demand? Certainly that's not the case as rising LME stocks show. In fact, nickel inventories are reaching all time highs. Stores have gone from under 10,000 to over 120,000 as production outpaces demand.
And the last three months LME inventories have shown no let up, just overflowing nickel stocks.
So why the discrepancy between nickel price and rising stocks? Why is nickel holding up while molybdenum is crashing?
I think it's due to the "animal spirits" of commodity traders who are willing to bid up nickel in the face of weak fundamentals. Future traders seem to be looking at the weakening U.S. dollar and buying every commodity in sight: copper, oil , nat gas (UNG) regardless of demand and supply. That doesn't exist in the world of moly, a mineral that lacks a futures market yet has world wide applications.
One wonders whether nickel and other commodities will follow moly's lead and tumble.
Disclosure: No position.
