A 175-year-old golden rule in markets is starting to break

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In commodity markets, certain truths can be taken as self-evident.

Gold consistently cost about 15 times as much as silver for more than 2000 years, from the time of the Lydian king Croesus to the 19th-century gold standard. Sharp movements in the ratio between copper and oil prices are often taken by traders as indicators of seismic shifts in the world economy.

You can make a similar argument about nickel and copper. Nickel is mainly used in producing stainless steel for cutlery and appliances, while the latter is essential for the wiring in our electric cars, data centres, toasters and washing machines. Nickel has been priced at a consistent premium to copper ever since it started to be mined on a large scale in the mid-19th century. That seeming law of nature looks on the brink of breaking.

The shift is an indicator of how much the energy transition is at the mercy of uncertain supplies of copper. Nickel prices are struggling because when the world needed more in recent years, miners managed to unlock vast new resources. They performed a similar trick in previous decades with iron ore and aluminium. Copper, the indispensable element as the world electrifies, is proving far less tractable to the laws of supply and demand – hence its surge to a record price last month.

Since it started trading on the London Metal Exchange in 1987, nickel has averaged about 2.85 times copper’s price.........

© The Age