Short term    

 (1-3M):
Up
Medium term

(3-6M):
Flat
Long term (12M): Up
Resistances:
R1 11,302 40 DMA
R2 11,719 20 DMA
R3 11,727 100 DMA
R4 11,780 23.6% Fibo Jun-Dec down leg
R5 12,918 200 DMA
R6 13,812 38.2% Fibo Jun-Dec down leg

Support:
S1 13,021 200 DMA
S2 12,655 Sep 2018 low
S3 11,724 100 DMA
S4 11,650 20 DMA
S5 10,720 Nov 27 low
S6 8,680 June 2017 low
Stochastics:
Trending higher
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 retained some positive momentum on Monday February 4, moving to a fresh three-month high of $12,715 per tonne. 
  • The momentum indicators remain positive - the stochastics are trending higher although the RSI at 79 suggests prices have edged deeper into overbought territory. 
  • Support is seen at $11,780 per tonne, the 23.6% Fibo of the June-December down leg. The rising 20 DMA, which has crossed above the 100 DMA at $11,729 per tonne. 
  • The longer-term chart picture remains constructive after nickel held above the UTL from the February 2016/July 2017 lows. With the momentum indicators crossing higher, nickel will look to target resistance above at $12,557 per tonne, which marks the 38.2% Fibo of the June-December down-leg.  

Macro drivers
Equities have made a positive start on Monday February 4 following Friday's positive employment and manufacturing data from the United States and optimism about progress in US-China trade talks.

LME nickel stocks totaled 201,090 tonnes on February 4, down from 218,868 tonnes at the end of October 2018. Still, flows have become somewhat more two-way since mid-October. Fresh cancelations are supportive, though, with a total of 30.2% of stocks now on canceled warrant. But some of 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 50-79% of warrant positions. The LME’s cash/three-month spread was recently in a contango of $68.50 per tonne. 

Nickel stocks in Shanghai Futures Exchange warehouses totaled 12,561 tonnes on February 1.

Figures from the China Stainless Steel Council showed crude stainless steel output rose 3.6% to a new high in 2018. Despite this, stainless steel prices have continued to weaken through January and could slip further in February, according to the latest Stainless Steel Market Tracker from Fastmarkets MB. Prices could rebound somewhat thereafter but it is clear uncertainty surrounding the demand outlook continues dampen any degree of restocking and squeeze stainless steel mill margins.

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 123,900-tonne deficit in January-November 2018.

The market continues to assess the knock-on effect of Vale’s tailings dam disaster at its Córrego do Feijão iron ore mine. The group will decommission all of its upstream tailings dams and financial penalties could affect mine investment projects, potentially curtailing Vale’s attempts to boost production by ~28% per year over the medium term from an estimated 244,000 tonnes in 2019

The latest COT data showed net length among LME investment funds increased by 1,074 lots in the week to January 25 - the 525-lots build in fund longs was bolstered by a modest 549-lot reduction in open shorts.

Conclusion
Nickel retains some positive price sentiment, with downside risks limited by decent dip-buying support for now. But while further gains are likely, prices are starting to look somewhat overbought in the short term and would benefit from some consolidation.

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.
  • breaking above the DTL from the June 6 high, currently at $10,901 per tonne.
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  • breaking above the DTL from the June 6 high, currently at $10,901 per tonne.
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