Short term    

 (1-3M):
Up
Medium term

(3-6M):
Flat
Long term (12M): Up
Resistances:
R1 10.880 20 DMA
R2 10,892 DTL Jun 6 high
R3 11,019 40 DMA
R4 11,440 Dec 2018 high
R5 11,970 100 DMA
R6 13,099 200 DMA

Support:
S1 13,099 200 DMA
S2 12,655 Sep '18 low
S3 11,970 100 DMA
S4 10,880 20 DMA
S5 10,720 Nov 27 low
S6 8,680 June 2017 low
Stochastics:
Fastline stalls
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 LME three-month nickel price has risen to a one-month high of $11,190 per tonne on Monday January 7, building on Friday's solid gain of 2.3%.
  • Still, the small Doji candlestick so far points to an element of indecision. This is reflected in the momentum indicators - the stochastic fast line has stalled, as has the RSI, which at 55 remains neutral overall. 
  • Support is seen from the 40 DMA at $11,019 per tonne ahead of the 20 DMA at $11,882, which coincides with the DTL from the June 6 high. A positive cross above the 40 DMA by the 20 DMA would be bullish for short-term sentiment.
  • Resistance above is seen from the 55 DMA at $11,287 and the December 3 high at $11,440. The 100 DMA stands above at $11,970 per tonne.

Macro drivers
Risk sentiment continues to build on Friday's rebound, driven by stronger-than-expected employment data from the United States, optimism over US-China trade negotiations and further monetary stimulus after the People's Bank of China announced it will cut banks' reserve requirement ratio by 100 basis point from mid-January.

LME nickel stocks are trending lower - at 204,852 tonnes, they are down from 218,868 tonnes
at the end of October. Still, flows have become somewhat more two-way since mid-October. Fresh cancellations are supportive, though, with a total of 26.1% of stocks now on cancelled warrants. But some these outflows are believed to be heading into off-market storage rather than being utilized by end-users so they will return to the open market eventually. One entity holds 30-39% of warrant positions, with the cash/three-month spread recently in a contango of $70.50 per tonne. 

Nickel stocks in Shanghai Futures Exchange warehouses totaled 14,881 tonnes on January 4. Fastmarkets MB assessed nickel stocks in Shanghai-bonded warehouses at 23,000-30,000 tonnes at the end of December compared with 24,000-32,000 tonnes in November.

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

There could be some upside, however, because Chinese authorities have announced new investment in railway infrastructure to help combat slowing domestic economic momentum.

The underlying fundamentals are likely to remain supportive - the International Nickel Study Group (INSG) forecast the refined nickel market to record a further 33,000-tonne deficit in 2019 after the 118,700-tonne deficit in January-October 2018. 

Global mine production increased by 6.4% in January-September, which suggests metal production could accelerate. 

But supplies from the Philippines will 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.

The latest commitments of traders (COT) data showed net length among LME investment funds declined by 1,716 lots in the week to December 28. Net length stands at -1,387 lots, down from +17,527 lots at the end of September because of long liquidation and short selling. 

Conclusion
Nickel has made a positive start to 2019, underpinned by dip-buying interest around $10,700 per tonne. The chart picture is starting to look more constructive; the current speculative positioning suggests there is ample room for prices to rally, although this is
 likely to hinge on China-US trade negotiations and their impact on broader risk sentiment.

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.