- The LME three-month nickel price has risen to a one-month high of $11,190 per tonne on Monday January 7, building on Friday's solid gain of 2.3%.
- Still, the small Doji candlestick so far points to an element of indecision. This is reflected in the momentum indicators - the stochastic fast line has stalled, as has the RSI, which at 55 remains neutral overall.
- Support is seen from the 40 DMA at $11,019 per tonne ahead of the 20 DMA at $11,882, which coincides with the DTL from the June 6 high. A positive cross above the 40 DMA by the 20 DMA would be bullish for short-term sentiment.
- Resistance above is seen from the 55 DMA at $11,287 and the December 3 high at $11,440. The 100 DMA stands above at $11,970 per tonne.
Risk sentiment continues to build on Friday's rebound, driven by stronger-than-expected employment data from the United States, optimism over US-China trade negotiations and further monetary stimulus after the People's Bank of China announced it will cut banks' reserve requirement ratio by 100 basis point from mid-January.
LME nickel stocks are trending lower - at 204,852 tonnes, they are down from 218,868 tonnes at the end of October. Still, flows have become somewhat more two-way since mid-October. Fresh cancellations are supportive, though, with a total of 26.1% of stocks now on cancelled warrants. But some these outflows are believed to be heading into off-market storage rather than being utilized by end-users so they will return to the open market eventually. One entity holds 30-39% of warrant positions, with the cash/three-month spread recently in a contango of $70.50 per tonne.
Nickel stocks in Shanghai Futures Exchange warehouses totaled 14,881 tonnes on January 4. Fastmarkets MB assessed nickel stocks in Shanghai-bonded warehouses at 23,000-30,000 tonnes at the end of December compared with 24,000-32,000 tonnes in November.
In the physical market, nickel premiums were little changed due to limited seasonal demand from the stainless steel market and a negative import arbitrage in China.
There could be some upside, however, because Chinese authorities have announced new investment in railway infrastructure to help combat slowing domestic economic momentum.
The underlying fundamentals are likely to remain supportive - the International Nickel Study Group (INSG) forecast the refined nickel market to record a further 33,000-tonne deficit in 2019 after the 118,700-tonne deficit in January-October 2018.
Global mine production increased by 6.4% in January-September, which suggests metal production could accelerate.
But supplies from the Philippines will slow to a nine-year low of 24 million wet metric tonnes in 2019, according to the Philippine Nickel Industry Association (PNIA), following the government's decision to limit mining operations.
The latest commitments of traders (COT) data showed net length among LME investment funds declined by 1,716 lots in the week to December 28. Net length stands at -1,387 lots, down from +17,527 lots at the end of September because of long liquidation and short selling.
Nickel has made a positive start to 2019, underpinned by dip-buying interest around $10,700 per tonne. The chart picture is starting to look more constructive; the current speculative positioning suggests there is ample room for prices to rally, although this is likely to hinge on China-US trade negotiations and their impact on broader risk sentiment.
All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.