FOCUS: Nickel prices ‘piggyback’ on dollar weakness, but will it last?

Nickel prices on the London Metal Exchange have climbed 10% since the start of 2018 - with the dollar the main supporting factor of the rise, the spotlight is being shone on the nickel price’s extreme volatility.

On Thursday January 25, nickel closed on the LME in positive territory for the sixth consecutive trading day and was trading at a two-and-a-half-year high of $13,915 per tonne. The last time nickel hit $14,000 per tonne or above was in May 2015.

“Nickel is in a very sustainable bull market and has been for over a year now. The recent volatility reflected a period of excessive exuberance around electric vehicle demand which caused a short-lived price spike. But that was just noise around a positive underlying trend,” Guy Wolf, global head of market analytics at Marex Spectron, explained.

“Nickel is a classic late-cycle sensitive metal. Demand has picked up and supply, having seen no investment for years during the bear market, is not going to be able to respond quickly,” he added.

The dollar falling to its lowest since December 2014 – its recent low being 88.43 - has boosted commodity prices across the board, but nickel has seen the greatest benefit out of the LME complex.

“Base metals as a whole have benefited, but when you look at the dollar – it is clear that has taken the weaker dollar strength to a whole new level,” a London-based analyst said.

The nickel curve has also tightened with cash/three-month spreads recently at $24.50 per tonne contango - from last week’s range of $41.50-63 per tonne.

“When [the cash/three-month spread] is compared to last year’s average of $55.42c, this indicates a significant tightening in the global nickel market is under way,” Metal Bulletin analyst Andy Farida said.

“The battery demand from electric vehicles is icing on the cake but the impact today is primarily psychological. Which is also important,” Wolf added.

Will it last?
But there is some skepticism around whether current high prices are sustainable and what is driving the current hike.

“The nickel rally has no real trade substance to be honest – it is all speculative again. One wobble and the whole thing [price rally] will collapse,” a source said.

“Nickel is piggybacking on the dollar but there is not any real substance in the rally and the concern is it could fall just as quickly as it climbed,” a trader added.

The intraday trading ranges have been wide for nickel this week – it traded between $12,725 and $13,665 per tonne on Tuesday, and between $13,470 and $13,915 per tonne on Wednesday.

Meanwhile, LME trading volume for the metal remains higher than average – Wednesday saw the highest volume traded since January 2017 at 17,372 lots.

“It’s just speculative buying. A lot of money from institutions, hedge funds are looking for home. Some funds like trading nickel a lot. If you want to invest some money into LME metal contracts and you want to make a big bang, you will probably choose nickel, tin or lead,” Societe Generale analyst Robin Bhar told Metal Bulletin.

“In the past few days, there has been more volatility on a daily basis in prices, be prepared if you are a merchant,” he added.

EV rally
And there is good reason to be wary of nickel’s climb. During 2017, the metal price rallied nearly 9% in one day then tumbled 16% over the following two weeks after getting too caught up in the electric vehicle (EV) excitement.

With EV expectation still in the pipeline, many in the market feel like it is too early for this to push prices higher.

“There is global optimism [for the] EV evolution, but that is way ahead of the future. It may be happening in five to 10 years’ time,” Bhar added.

“Even though we like the prospect of nickel in the long term due to its place in the electric vehicle revolution, its price action can get quite volatile,” Farida concluded.

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