NICKEL TODAY – A rethink needed on nickel

Short Term:
Medium Term:
Long Term:
Resistances:
R1 10,518 20 DMA
R2 10,630 Recent peak
R3 10,880 Former support
R4 11,030 August peak
R5 11,900 Resistance
R6 12,145 High so far
R7 12,926 38.2% Fibo 2014-2016 down trend
R8 13,205 2013 lows
R9 15,225 Long term DTL
Support:
S1 11,030 August high
S2 10,900 September high
S3 10,880 SL (broken at)
S4 10,845-10,870 Nov lows
S5 10,652 20 DMA
S6 9,960 October low
S7 9,955 UTL
S8 9,660 Low so far
S9 9,630 September low
S10 7,550 Feb low
Stochastics:Bullish
Legend:

MACD = Moving average convergence divergence
BB = Bollinger band
DMA = Daily moving average
Fibo = Fibonacci retracement line
SL = Support line
HL = Horizontal line
H&S = Head-and-shoulder pattern

Technical Comment

Analysis

  • Nickel’s consolidation rolled over into a downward correction in December. Prices rebounded off the UTL but subsequently stalled and spiked lower – they are now consolidating in the middle of the range of the past ten days.
  • Yesterday’s spike low breached the January 4 low but prices had left a large downward spike on the chart by the close yesterday.
  • The stochastics are continuing to trend higher although they also had a blip to the downside in recent days. 
  • We had seen the December sell-off as profit-taking ahead of the end of the year and the recent rebound suggested longs were re-establishing their long positions now we have moved in the New Year. But the recent volatility is now likely to lead to choppy trading for a while.

Other factors

Nickel might act like a wounded animal while it thrashes around as it tries to come to terms with what has happened. After three years of adjusting to the Indonesian ore export band that has set in motion numerous large-scale investments in Indonesia and the Philippines, the rules have been suddenly changed. Although there were rumours that change may be afoot, it was widely believed that, having stuck to the restructuring for three years and taken the pain, it would make little sense to relax the export rules just as some of the investments are starting to bear fruit. The fact prices slumped and then rebounded suggests that there is still much uncertainty about what the new rules mean. If it opens the flood gates for nickel ore exports again, it would be a major negative for nickel’s fundamentals, especially because the export ban and lower exports from the Philippines have yet to draw down LME stocks to more normal levels.

LME stocks stand at 370,866 tonnes – in the three years between 2006 and 2008, they averaged 28,856 tonnes. It looked as though the Indonesian ore export ban would give the nickel industry the opportunity to reduce global stocks but the combination of stockpiling ahead of of the Indonesia ban, the massive effort by the Philippines to plug the gap left by the halting of Indonesian exports and the destocking of off-market nickel stockpiles in China after the Qingdao Port scandal have meant nickel stocks have not been drawn down much – indeed, they are higher today than the 260,000 tonnes in LME-bonded warehouses when the ban was imposed in January 2014.

We have said in recent weeks the next direction was likely to be dictated by political decisions in the Philippines and Indonesia over the mining and export of nickel ores. We have now seen the Indonesian rule change and should hear from the Philippines soon. If the Philippines decides to clamp down on production, the bullish case for nickel may continue; if not, nickel could be hit by a doubly bearish whammy. 

Given a large net long money managers’ position in nickel, the market is at risk of stale long liquidation should the fundamentals turn more bearish. We should be in a better situation to review the market once we know the Philippines’ decision.

The combination of high stocks and the likelihood that Indonesia will export some nickel ores to China are likely to keep a cap on nickel prices for longer.

Conclusion

Nickel prices are holding up for now – there is still a lot of uncertainty around about what the Inonesian rule changes mean and what the Philippines will decide. Nickel miners in Indonesia were pressing for a relaxing of the rules – we are sure they will take what advantage of the rule changes wherever they can. So this is a bearish development – we now wait to see if the Philippines counters this with a bullish decision.

For now we expect the market to become increasingly volatile. 

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