Nickel hardens on supply concerns

Threat of sanctions on Russia and Indonesia’s ban on ore exports have stoked prices



Nickel prices have surged by 18 per cent in the last four weeks. Increasing fears of fresh sanctions on Russia, that could disrupt supply, has stoked prices.

Russia is the second-largest refined nickel producer in the world. Its share in global supply is about 14 per cent, next only to China’s, the top producer with about 40 per cent share.

Though the rise in nickel prices gathered momentum in the last four weeks, the actual rally had begun in January.

Indonesia, the largest exporter of nickel ore, imposed an export ban in January to promote domestic processing.

According to Barclays Plc, the global nickel market could run into a deficit in 2015 for the first time since 2010, because of this ban. China, the world’s largest nickel consumer, is expected to be hit badly.

Reports state that China had piled up its stock well ahead of this ban by increasing its imports to 6.12 million tonnes in January from 3.99 million tonnes a year ago. However, this stockpile is expected to meet the demand only till the last quarter of this year.

The International Nickel Study Group expects global supply of primary nickel to remain unchanged at 1.94 million tonnes in 2014.

Consumption, however, is projected to increase by 6.7 per cent to 1.89 million tonnes.

India’s nickel consumption is constantly on the rise. According to the data from the World Bureau of Metal Statistics, nickel consumption in India rose 12.2 per cent in 2013 to 37,000 tonnes.

Since India depends entirely on imports, any fluctuations in the rupee-dollar rate and global nickel prices could impact the domestic prices.

Long-term view

The long-term outlook for the MCX nickel futures (₹1,118.5 per kg) is mixed, although the bias is turning towards a bullish long-term view.

The contract has been trading in a bear channel since 2012. The strong rally since March has broken the bear grip, providing initial signs of a long-term uptrend.

However, at ₹1,348, the 50 per cent Fibonacci retracement level is an important resistance to watch out for.

Only a strong break of this level will confirm that the contract is in a long-term uptrend.

The inability to breach ₹1,348 can keep the contract in a broad sideways range of ₹800-₹1,350 in the long term.

Important support for the contract is at ₹850.

As long the contract trades above this level, there is no immediate threat and the path is clear for it to test ₹1,348.

In the global market, nickel futures contract, traded on the LME, has formed a strong base of $13,000-15,000/tonne for more than a year since 2013.

A breakout above $15,000 last month marks the reversal of the long-term downtrend.

The outlook has turned bullish now. Any pullback can find support at $15,000 levels. Key resistance to watch now are $19,254 and $21,139, which are the 38.2 and 50 per cent Fibonacci retracement levels. Only a sharp fall below $15,000 will turn the outlook bearish again.

Since MCX nickel moves in tandem with global prices, a rally to ₹1,348 looks more likely in the domestic market.

Medium-term view

The medium-term trend is up. Key support for the contract is at ₹970. Any pullback from the current levels could be limited to ₹970, when there could be fresh buying interest. As long as the contract trades above ₹970, a rally to ₹1,220 looks possible in the medium term. Only a strong fall below ₹970 will turn the outlook negative. The targets on such a break will be ₹920 and ₹880.

Short-term view

The short-term trend is up. MCX nickel futures contract has risen rapidly in a short span of time. Thus, there is a high probability for a corrective fall in the coming days although there is no significant short-term resistance.

The psychological level of ₹1,000 will be a key short-term support for the contract which can limit the corrective fall. An immediate fall below ₹1,000 looks less probable. A reversal from ₹1,000 can take the contract higher towards ₹1,150 in the short term.

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