NICKEL TODAY – Upside momentum lost but prices hold up for now

Short Term:
Medium Term:
Long Term:
Resistances:
R1 10,785 Oct 2015 high/HRL
R2 11,030 August peak
R3 11,405 20 DMA
R4 11,900 Resistance
R5 12,145 High so far
R6 12,926 38.2% Fibo 2014-2016 down trend
R7 13,205 2013 lows
R8 15,225 Long term DTL
Support:
S1 11,405 20 DMA
S2 11,030 August high
S3 10,900 September high
S4 10,875 SL
S5 10,845-10,870 Recent lows
S6 10,488 UTL
S7 9,960 October low
S8 9,630 September low
S9 7,550 Feb low
Stochastics:Neutral -to-negative
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

Analysis

  • Nickel’s recent attempts to push higher have all run into resistance at slightly lower levels, which suggests resting sell orders are being placed just ahead of the former highs. 
  • Support is fairly flat between $10,835 and $10,870 per tonne, basis three months. This could be forming a descending triangle pattern.
  • The stochastics have become quite choppy in mid-range so they are not providing much direction. 
  • In recent weeks we have felt that prices are consolidating before heading higher, in line with the upward trend that has dominated all year. But the risk of stale long liquidation may grow – at least in the short term – if prices do not regain upward momentum.

Other factors

Although nickel prices have rallied strongly this year, this has been off a very low base. Prices of $11,000-12,000 per tonne are not high considering the long-term chart (see inset). 

The latest INSG data showed the market in a supply deficit of 58,600 tonnes in the first ten months of the year compared with an 84,800-tonne surplus in the same period in 2015. Supply has fallen 30,700 tonnes, a drop of 1.9%, and usage has climbed 112,700 tonnes, a rise of 7.2%. Mine supply was down 8.8% – there were falls in the Philippines (99,000 tonnes), Australia (19,000 tonnes), Russia (29,000 tonnes) and Guatemala (17,000 tonnes) but rises in Indonesia (30,000 tonnes) and New Caledonia (18,000 tonnes).  

The Philippine government announced on December 15 that it had cancelled the environmental compliance certificates (ECC) at a further two nickel mines. Ten mines (not all nickel) have so far been halted and a further 20 face suspension, with decisions likely to be announced in January. 

Restocking in the stainless steel and nickel industries can be powerful forces, which has been evident in recent months. Restocking has taken place because of improved demand, rising prices and while supply faces disruption from the Philippines. For now there must be enough nickel around to satisfy the market – exchange stocks are not falling to any great extent. With that in mind, the latest up-leg in prices is hard to justify – perhaps traders and funds are anticipating tightness to show up before too long.

The fund gross long position is extended (see chart).

Conclusion

We are bullish over the medium term because nickel prices are still low and we expect supply disruptions to last and to lead to exchange stocks being drawn down. We are slightly concerned that stocks are not falling at a faster pace and by the size of the money managers’ gross long position, especially given the loss of upward price momentum.

We would be wary of a correction until prices break higher again.

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