NICKEL TODAY: Attempting to stabilise

Short Term:
Medium Term:
Long Term:
Resistances:
R1 9,480 Mar 2016 high
R2 9,700 May 2016 High
R3 10,335 200 DMA
R4 10,421 40 DMA
R5 10,683 100 DMA
R6 10,781 20 DMA
R7 10,785 Support/resistance H2 2015
R8 11,650 Resistance mid-2015
R9 12,145 2016 high
R10 13,205 Support Jul 2013-Jan 2014
Support:
S1 10,785 Support/resistance H2 2015
S2 10,781 20 DMA
S3 10,421 40 DMA
S4 10,335 200 DMA
S5 10,000 61.8% Fibo (Jun>Aug rally)
S6 9,700 H1 2016 high
S7 9,682 50% Fibo (Jun>Aug rally)
S8 8,880 Former resistance
S9 8,350 Mar/Apr/Jun lows
S10 7,710 Apr 2003
S11 7,550 2016 low
S12 4,440 Oct 2001 low
Stochastics:Bearish
Legend:
BB – Bollinger band
DMA – daily moving average
Fibo – Fibonacci retracement line
SL – support line
HL – horizontal line
H&S – head-and-shoulder pattern

Analysis

  • This has been a bad week for nickel, with the metal down as much as 9% from Monday’s peak of $11,090 per tonne.
  • Nickel has broken through its major moving averages and has pierced support from the DTL formed from the November 2016 high. These will now act as scaled-up resistance.
  • A Doji candlestick formation yesterday implies some indecision; however, prices are under pressure again today and the stochastics remain mildly bearish for the moment.
  • Support below $10,000 is now seen at the August/September lows around $9,720 per tonne, ahead of the pivotal $9,500 per tonne price level.

Other factors

US employment data will be under scrutiny today ahead of next week’s FOMC policy setting meeting. Data is expected to show the US economy added 200,000 jobs last month, according to forecasts. Fed chair Yellen says 75,000-125,000 jobs per month are sufficient to keep the jobless rate steady.

Supply-side uncertainties in Indonesia and the Philippines continue to dominate nickel price sentiment – the latest development is of more Indonesian companies receiving approval to resume nickel-ore exports, following the release last week of further details from the government. 

LME stocks total 384,978 tonnes, up 3.5% or 12,912 tonnes in the year to date amid busy two-way flows. LME cancelled warrants account for 27.4% of LME stocks – this is down from 36% in early January – due to fresh cancellations and metal being placed back on warrant. There is little sign of tightness in the market. There are no dominant warrant positions. The cash/three-month spread remains in contango – it was last at $58 per tonne contango.

Nickel premiums in Shanghai firmed last week amid tight availability as the LME/SHFE arbitrage remains closed. In Europe, firmer prices curbed buying interest despite reports of tight availability. US melting grade nickel premiums held flat at 18-25 cents per lb this week though market participants noted a tightness of material, suggesting that premiums could move higher in the short term. 

Recent data from China has shown efforts to tighten restrictions on property sales have begun to curb property price gains. According to China’s National Bureau of Statistics (NBS), average new home prices in China’s 70 major cities increased 0.2% month-on-month in January compared with the 0.3% gain in December. Sales also increased by a more modest 12.2% year-on-year compared with the 12.4% gain reported in December. Slowing property prices are encouraging, reducing asset-bubble concerns, but there are concerns a deeper slowdown could have deflationary implications. Slowing activity could also create headwinds for nickel given the metal’s extensive use in the production of stainless steel.

According to INSG figures, the global nickel market recorded a a surplus of 9,700 tonnes in December, narrowing the full-year deficit to 49,700 tonnes, compared with a surplus of 91,400 tonnes a year earlier.

The INSG expects the market will record a slightly deeper deficit of 66,000 tonnes this year thanks to growing demand from the stainless steel sector. But elevated and stable visible stock levels lead us to think that the supply/demand balance is not tightening much.

Conclusion

Nickel prices are set to remain volatile as the market continues to react to supply-side developments. But the recent softening of fundamentals implied by the INSG, coupled with the large overhang of visible stocks, suggests prices will remain low from a historical perspective without greater supply-side discipline.

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