The metal, however, has been on a downward trend, weighed down by worries over demand especially from top consumer China.
LME Nickel prices are down more than 1.5 percent on November 11 after 3.5 percent slide last week. The metal which is the best performer in metals pack year-to-date (YTD) has declined more than 15 percent from a multi-month high of $18,850 early September.
Nickel prices rallied to a multi-month high supported by a fear of a shortage in supplies from Indonesia after it had decided to bring forward a ban on exports from 2022 to 2020.
The metal, however, has been on a downward trend since then, weighed down by worries over demand especially from top consumer China. Furthermore, a jump in stockpiles at SHFE along with signs of easing tightness in the physical market as is evident from LME Cash to three-month spread flipping to contango have further weighed on the prices.
Nickel inventories at SHFE have more-than-doubled and are hovering at 30,831 tonnes, the highest level since June 2018, as on November 8. Meanwhile, LME Nickel Cash to a three-month spread, which was in a backwardation of $214 as in October, has flipped to $1 contango as of November 8, indicating easing tightness in the physical market.
The metal has further come under pressure after top ore producer Indonesia said it would resume exports, following a temporary halt last month.
On the macro front, the 'risk on – risk off' mode amid lingering uncertainty over the US-China trade deal along with global growth worries and the strength in the US Dollar have also weighed on the prices.
On November 7, the global risk appetite surged after both the US and China agreed to roll back tariffs on each other’s goods in a 'phase one' trade deal. However, markets were forced to dial back their euphoria, following a Reuters report that the plan faced stiff internal opposition in the US administration. Also, US President Donald Trump’s comments on November 8 that the US had not agreed to roll back all tariffs on China added to uncertainty over trade deal.
Meanwhile, the US Dollar Index noted more than 1 percent gains, supported by easing expectation of another rate cut by the US Fed and a lingering political risk in Britain.
Despite the above-mentioned negative factors, not all is gloomy for Nickel prices. The metal may continue to seek support from dwindling stockpiles at LME warehouses along with expectation of supply deficit for fifth straight year.
Nickel stocks at LME have slid more than 68 percent YTD and, at 65,064 tonnes as on November 11, are hovering at the lowest level since December 2008. According to the latest forecast by INSG, the global Nickel market may witness a deficit of 47,000 in 2020, following 79,000 tonnes in 2019 and 1,44,000 tonnes in 2018.
Overall, even though the near-term outlook for Nickel continues to remain bleak, the market remains vulnerable to short covering on the back of lower stocks at LME and worries over shortage from Indonesia.
(The author is Head – Commodity Research at Kotak Securities.)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Are you happy with your current monthly income? Do you know you can double it without working extra hours or asking for a raise? Rahul Shah, one of the India's leading expert on wealth building, has created a strategy which makes it possible... in just a short few years. You can know his secrets in his FREE video series airing between 12th to 17th December. You can reserve your free seat here.