Nickel gives up its gains

The market is expected to end 2015 with a surplus of 20,000 tonnes

Nickel, like other base metals, has suffered a major price correction in the last one year. The price of nickel has tumbled over 40 per cent since August last year. The nickel futures contract traded on the Multi Commodity Exchange (MCX) recorded a high of ₹1,204 per kg in September last year and has tanked about 44 per cent since then. It is currently trading at ₹674.3.

On the charts, , the downtrend that had begun in 2014 remains intact. Nickel prices appear likely to extend this fall further in the coming weeks. The bounce back from the July low of ₹666.8 failed to gain enough momentum to breach the 21-day moving average resistance.

The contract has reversed lower after recording a high of ₹761.5, suggesting that the bounce-back was just a brief pullback of the downmove that flagged off from the high of ₹874 recorded in June. The 21-day moving average at ₹696 is a key short-term resistance for the contract. A further fall in prices to test the next key supports at ₹640 and ₹625 looks likely now.

The downside pressure on the contract may ease only if it records a decisive break and a strong close above the 21-day moving average. Such a break can take it higher to test the significant short-term resistance at ₹760. However, the short-term outlook will turn bullish only after the contract surpasses this hurdle decisively.

The medium-term trend is also down. The sharp fall below a key long-term support around ₹800 in June has increased the momentum of the downtrend that has been in place since 2014.

The 21-week moving average at ₹785 and trendlines at ₹800 and ₹825 are the key medium-term resistances for the contract. A fall to ₹580 is possible as long as the contract trades below these resistances. A break below ₹580 will see the downtrend extending even further to ₹500.

A decisive weekly close above ₹800 will be first sign of a trend reversal. That would increase the possibility of the contract breaching ₹830 with the next target at ₹900.

Strong downtrend

On the global front, nickel spot prices on the London Metal Exchange (LME) have been in a strong downtrend. The commodity recorded a high of $21,200 per tonne in May 2014 and has been continuously falling since then. It is currently trading at $10,168 and is likely to test the psychological support level of $10,000 in the coming weeks. A strong break below this support level can drag the price further lower to $9,000 or $8,800 thereafter. Important support is seen in this $9,000-8,800 zone which could halt the fall. A reversal from this support zone can take the LME-Nickel price higher to $12,000.

On the other hand, if the price fails to reverse higher from $8,800 and falls below this support, then the commodity could face a further onslaught from bears. In such a scenario, there could be significant chances of the price falling to $8,400 or even lower levels. From a fundamental perspective, the nickel witnessed a strong 48 per cent rally last year, mainly due to supply fears. Indonesia had banned the export of unprocessed ores from January 2014 in order to promote domestic processing. This move from the world’s top exporter of nickel ore turned the market nervous and fuelled fears of a huge supply disruption.

Also, sanctions on Russia, the second-largest refined nickel producer, added to supply worries and further supported the rally. The global nickel market was expected to run into a deficit in 2015 for the first time since 2010. But Philippines, one of the major nickel producers, increased its output in order to fill the vacuum and kept the market adequately supplied. This, combined with the Chinese slowdown, triggered a quick revision in supply estimates.

Currently, the market is expected to end 2015 with a surplus of 20,000 tonnes, according to data from the International Nickel Study Group. This has caused nickel to give back most of the price gains made last year.



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