NICKEL TODAY: Price needs to find support at low of 2016 UTL

Very short term (1M):  Flat 
 Short term (3M): Flat
Medium term (6M): Flat
Long term (12M): Up
R1 12,434 20 DMA
R2 13,000 Psychological
R3 14,350 2020 high
S1 11,535 March 2020 low
S2 11,000 Psychological
S3 10,525 December 2018 low

BB - Bollinger band
DMA - daily moving average
Fibo - Fibonacci retracement level
HSL - horizontal support line
SL - support line
MACD - moving average convergence divergence
U/DTL - up/downtrend line
H&S - head-and-shoulder pattern
RSI - relative strength index

  • The inserted London Metal Exchange nickel weekly chart implies that the metal has entered into a potential turnaround zone (see chart) where the low of the 2016 UTL resides. 
  • Although the metal found support in two previous occasions, it still could break below the UTL if selling pressure intensifies. 
  • In some cases, it could have a brief affair trading below the UTL before reacting higher. 
  • As things stand, sellers have the chance to take the nickel price lower but the longer it takes to break below the 2016 UTL, the higher the probability a counter-trend reversal will emerge.
  • We will not discount the fact that this discounted price level could very well trigger bargain-hunting, however, with long-term investors opting to accumulate their bullish exposure again.
Macro drivers

Major Asian equity indices are under selling pressure on Wednesday March 18 while the Nikkei closes 1.68% lower, the Hang Seng was down 2%, while the Shanghai composite was down 0.6% at the time of writing. Risk sentiment has turned negative again after US equities hit a limit-down, which already put further selling pressure on LME base metals prices. 

As things stand, a global lockdown - except for China - is fast becoming an accepted reality though the magnitude of the social and economic damage remains insurmountable. It has taken its toll on risk assets and the bearish vibe has dampened a much improved situation in China. Our team in China reported that previously shuttered factories had resumed operations, with some at 60% utilization rates and some offices in key cities are at 90% operation rate. The message since early March is that China can and will resume its social and economic activity, though it will take time. 

Meanwhile, given how inter-connected the world has become due to globalization, the LME base metals complex is currently pricing in the negative impact on global trade and even if China has stabilized, the lack of demand for goods ‘made in China’ is severely limited when consumers in Europe or the US are not able to buy. At 54%, China consumed a little over half of all the refined nickel in the world last year, according to the International Nickel Study Group (INSG). But the with the rest of the world starting to slow down due to lockdowns and demand deferment, the prospect of a quick recovery in the LME nickel price does not look likely. 

That said, a supply impact on nickel and across the other base metals, could emerge in the coming weeks following reports that Vale opted to ramp down production at its nickel-copper mine in Volsey’s Bay, Canada. We suspect that other miners and potentially refineries, could choose to replicate similar practices. If more supply lines are disrupted, this could help rebalance the nickel market and potentially nullify some of the bearish pressure on its price action. 

Going forward, there are green-shoots that the demand outlook for electric vehicles (EV) may not be all bad. China Association of Automobile Manufacturers (CAAM) called on the government to help the auto industry after reporting extremely weak sales in the first two trading months of 2020 due to the outbreak of Covid-19. CAAM has asked authorities to extend subsidies for new energy vehicles (NEV) and expand investment in infrastructure such as charging stations. 

Larger and faster stimulus programs are likely to be implemented to support the domestic Chinese economy too. Demand for batteries to power NEVs as well as restocking among domestic stainless steel mills is set to return in the coming weeks with the relaxation on logistics constraints as well as resuming business from the worst hit provinces.  

It is paramount that the LME nickel price can quickly find dip-buying interest at the 2016 low UTL. A negative break below it could spell more downside pressure and put the metal at risk to target the December 2018 low. 

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.


March 18, 2020

11:45 GMT