Nickel prices have surged nearly 12 per cent in the ongoing calendar year till September 20. From being the worst performer in 2015 (42 percent down) to being second best performer in 2016, Nickel has come a long way. We saw Nickel breaking out from the trading range in July after consolidating in April and May. One of the important factors for the rally in June and July was Philippines reviewed all existing mines in order to close those that had adverse impacts on the environment. At least eight nickel mines have been shut down so far this year, cutting around 10 per cent of the country’s capacity. So far, 10 mines have already been suspended since the start of the audit, with the newly elected Philippine government determined to raise mining standards. Philippines is now largest nickel-ore supplier to China. Previously it was Indonesia that was largest supplier to nickel-ore to China but after it imposed export ban in 2014, Philippines have taken over as largest supplier to China.
According to the latest International Nickel Study Group (INSG), the nickel market swung to a deficit of 21,200 tonnes in the first five months of 2016. World primary nickel usage was 1.875 million tonnes in 2014 and increased to 1.890 million tonnes in 2015. For 2016 INSG estimates an increase to around 1.962 million tonnes. The current disruptions in the Philippines have tightened the market for nickel ore triggering a price rally this year. In 2014, Nickel prices rallied as Indonesia prohibited nickel ore exports but the surge didn’t continue as miners in Philippines moved into the trade. Now environmental concerns are restricting supply in Philippines and Indonesia is trying to cover the market share and make up for the loss. So either way we don’t foresee deficit in Nickel for too long.
Looking at current situation, Nickel’s net long positions aren’t increasing in spite of physical tightness in the market. That is why other base metals are increasing except Nickel and Aluminum. It remains vulnerable to profit taking. The recent price weakness may prompt long positions to liquidate and short sellers to build their position. We believe most of the positive fundamentals are already factored in and it’s starting to lose its appeal. In MCX, short term trend is negative as Nickel chart pattern shows lower top and lower bottom. Rs 700 seems to be strong resistance for Nickel and once Nickel breaks that barrier, then we can say Nickel will touch the levels of Rs 725-730. Oscillators have started showing some positive momentum but the confirmation may come above Rs 700. In the last couple of trading session, the momentum has shifted to positive as Nickel was looking oversold. Long position is recommended above Rs 700.
(The author is director, Tradebulls)