Very short term (1M):  Up 
 Short term (3M): Up
Medium term (6M): Up
Long term (12M): Up
R1 12,850 July high
R2 13,765 Mar 2019 high
R3 14,145 Aug 2018 high
S1 12,546 100 DMA
S2 10,525 Jan 2019 low
S3 10,215 Sep 2018 low 

BB - Bollinger band
DMA – daily moving average
Fibo - Fibonacci retracement level
HSL - horizontal support line
SL - support line
MACD - moving average convergence divergence
U/DTL - up/downtrend line
H&S - head-and-shoulder pattern
RSI - relative strength index

  • Follow-through buying on Monday July 8 allowed LME nickel to close with a positive daily candle. 
  • The rebound momentum since the July 2 low at $12,015 per tonne is targeting the July 1 high at $12,850 per tonne and potentially then the 61.8% Fibo of the March high-June low (see chart). 
  • The daily RSI and the stochastic lines continue to trend higher, supporting the current buying momentum.
  • But we remain mindful that nickel remains within an ascending wedge-like formation, which could potentially be a bear flag.Only a solid break above the psychological price level of $13,000 per tonne would invalidate such a bearish technical outlook. 
Macro drivers
The firmer dollar index at 97.45 this morning, the uncertain macroeconomic landscape and the continued sell-off in major Chinese indices have kept buying appetite in the LME base metals subdued.

Still, the pullback in the LME nickel price looks relatively mild. The Indonesian earthquake near nickel-rich Sulawesi on Monday raised concerns about a potential supply disruption.The extent of the damage remains unclear for now.

Continued drawdowns from LME-approved warehouses pushed holdings to a new annual low of 154,104 tonnes, providing nickel with some support. Metal left Baltimore, Rotterdam, Kaohsiung and Singapore. More outflows should follow since the contango in LME nickel nearby cash/three-month spread was last at $44 per tonne. But the spread has started to contract from last week’s contango of $90.50 per tonne; if this continues, another squeeze/short-covering rally could follow.

On the physical front, Chinese nickel premiums fell in the week to July 2 after the import arbitrage window closed - there is reportedly sufficient supply in mainland China now. In Europe, physical nickel business was rather tepid approaching the summer slowdown. US nickel premiums were unchanged in limited trading activity - all reported sales in the week to July 2 were at the low end of Fastmarkets’ range.

Demand for refined nickel from China will determine the next direction in the LME nickel price, we feel. The INSG has revised its forecast for a 72,000-tonne full-year deficit to 84,000 tonnes, expecting global nickel usage to increase by 5.8% this year entirely from China's stainless sector, which will exceed the increase in refined output.

For now, it appears that Chinese demand for nickel from stainless steel mills remains robust. Despite growing stocks and thinning profit margins in China’s stainless industry, the production rate at mills in the first four months of 2019 increased by 10.5% year on year, according to Antaike. Protectionist duties on stainless have reduced China’s reliance on imported stainless steel, encouraging domestic mills to maintain high output.

And given plentiful nickel ores from Indonesia and the Philippines, production of NPI in China was able to grow by 13.7% over January-April 2019, translating into higher output of stainless steel. But we have lingering concerns about nickel demand in the second half of 2019, especially from the Chinese stainless steel mills. 

Based on its technical chart, LME nickel price looks well positioned to retest the July 1 high. But there is a nagging feeling that the current rebound momentum lacks substance - it could disappear as quickly as it appeared ,We envisage more sideways trading in LME nickel in the very short term.

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