Signs of global economic recovery and increased industrial demand from the world's largest metal consumer, China brightens the outlook of base metals. Copper, the largely consumed industrial red metal jumped to a record high in LME last month, while other base metals like Lead, Zinc and Aluminium traded well above two-year highs. Nickel prices also gained reasonably.
The bullish trend in LME mirrored in Shanghai and Indian futures markets as well. In MCX, aluminium and copper rallied the most with 22 and 20 percent, respectively since the start of the year. Supply concerns amid higher demand outlook due to recovery in global industrial activities and weak US dollar assisted the sentiments.
Nickel was the frontrunner in the base metal complex in the first two months of the year. It surged to a seven-year high during this period but thereafter corrected sharply on news of a supply deal by a top Chinese company. However, prices managed to get traction on hopes of post-Covid demand recovery.
Nickel, which is largely consumed in the stainless-steel industry, now has a greater demand in the very promising electric vehicles battery segment. This commodity is a vital ingredient for making Lithium-Ion batteries which are widely used to power Electric Vehicles. Since several countries and automakers have already revealed their ambitious targets for EVs, the road ahead for metals like Nickel is bright.
As per the forecast of the International Nickel Study Group, the electrification of vehicles will continue to have a positive impact on nickel usage in the form of nickel sulphate in batteries. Currently, batteries are one of the smallest segments of nickel use, a shift in the automotive industry towards electrification will bring rapid growth in demand. The global demand of nickel used in batteries is expected to rise by 18 percent in 2021.
On the production side, the global nickel market is currently in surplus but hopes that it will narrow drastically in 2021. Last year, the market surplus was 1,32,000 tonnes which is expected to narrow to 58,000 tonnes this year. Global nickel demand is seen increasing by 9.2 percent, while supply is expected to decrease by 5.8 percent this year.
Indonesia is the largest producer of nickel and their production strategies largely affect the supply of the metal. Last year, Indonesia banned exports of unprocessed nickel to promote the development of a domestic smelting industry that had a bearing on the global nickel supply. Yet, the country continues to be the world’s top nickel miner and supplier.
Meanwhile, there are rumours that Indonesia is considering a plan to restrict the construction of smelters producing nickel pig iron for optimum use of its limited nickel ore reserves for higher-value products. If there are further restrictions on more smelters, it may create a further supply squeeze in the commodity.
Looking ahead, robust demand from the stainless-steel industries and the electric vehicle segment continues to offer support to prices. China’s considerable appetite for the commodity and concerns over supply may also generate investment excitement.
On the price front, the most active MCX July contract prices have a key resistance at Rs 1,450 per kg, breaking above which may lead to further sharp rallies. At the same time, major downside reversal point is placed at Rs 1100 a kg.
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