Short term    

 (1-3M):
Up
Medium term

(3-6M):
Flat
Long term (12M): Up
Resistances:
R1 10,785 support/resistance H2 2015
R2 10.922 20 DMA
R3 11,104 40 DMA
R4 13,150 200 DMA
R5 14,587 50% Fibo May 2014/Feb 2016
R6 15,236 Aug 2012 low
R7 16,248 61.8% Fibo May 2014/Feb 2016
R8 16,690 Apr 2018 high
Support:
S1 13,150 200 DMA
S2 12,685 50% Fibo Jun 2017-Apr 2018
S3 11,739 61.8% Fibo Jun 2017-Apr 2018
S4 10,922 20 DMA
S5 10,720 Nov 27 low
S6 8,680 June 2017 low
Stochastics:
Converging in mid-ground
Legend:

BB - Bollinger band

COT - commitments of traders

DTL - downtrend line

H&S - head-and-shoulder pattern

HSL - horizontal support line

MACD - moving average convergence divergence

RSI - relative strength index

SL - support line

UTL - uptrend line

WMA - weekly moving average

DMA - daily moving average





                                                                                                                                     

Analysis

  • The London Metal Exchange three-month nickel price is consolidating after extending to a fresh 14-month low of $10,635 per tonne on Friday December 28.
  • The momentum indicators are converging. The stochastics are converging in mid-ground although the RSI at 41 suggests prices are struggling for upside momentum.
  • While nickel has attempted to rally, the long upper shadow currently visible on today's daily candlestick implies overhead selling remains at the 20 DMA at $10,922 per tonne. This is ahead of the DTL formed since mid-June, which is currently at $11,998 per tonne. Above this, resistance is at the 55 DMA at $11,402 per tonne ahead of the 100 DMA at $12,078 per tonne.
  • Further support is at the recent double-bottom at $10,725 per tonne; failure to hold this level risks a retest of previous support from October 2017 at $10,215 per tonne.

Macro drivers

LME nickel stocks are trending lower - at 207,330 tonnes, they are down from 366,612 tonnes at the end of December 2017. Still, flows have become somewhat more two-way since mid-October. Fresh cancellations are supportive - 4,806 tonnes were booked for removal today, with a total of 26.6% of stocks now on cancelled warrant, although some these outflows are believed to be heading into off-market storage rather than for end use so they will return to the open market eventually. LME stocks are still tightly held, with one entity holding 30-39% of warrant positions, with the cash/three-month spread recently in a contango of $83.50 per tonne. 

Shanghai Futures Exchange warehouse nickel stocks totaled 15,259 tonnes on December 28.



But negative sentiment in the stainless steel market continues to create pressure for nickel. Fastmarkets MB's latest stainless steel market tracker suggests there are few positives for the global market at present, particularly because large-volume buyers chose to run stocks down while waiting for the market to find a price floor.



In the physical market, nickel premiums were little changed due to limited seasonal demand and a negative import arbitrage in China.

The latest figures from the International Nickel Study Group (INSG) continue to reflect bullish underlying fundamentals - the refined market stood in a 118,700-tonne deficit in January-October 2018. In addition, the INSG expects the market to record a deeper 146,000-tonne deficit in 2018 rather than the 117,000-tonne deficit it forecast in May, supported by rising demand growth from the stainless steel sector and nickel-containing batteries.



Global mine production increased by 6.4% in January-September, which suggests metal production could accelerate. The INSG has forecast the deficit in the refined market to narrow to 33,000 tonnes in 2019.

But supplies from the Philippines are forecast to slow to a nine-year low of 24 million wet metric tonnes in 2019, according to the Philippine Nickel Industry Association (PNIA), following the government's decision to limit mining operations.



Conclusion

Dip-buying continues to underpin for now; given the scale pul-back from its mid-year peak, current nickel prices may be viewed as a restocking opportunity. But this is unlikely in the short term because demand remains seasonally weak, while the chart picture suggests downside price risk remains unless nickel can vault overhanging DTL resistance.



All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.


  • Further support has been found at the November 27 low at $10,720 per tonne, which coincides with the December 2017 low. However, prices have been capped by the 20 DMA at $10,952.