Go long on Nickel for price target of Rs 920-935: Religare

Sugandha Sachdev

The turnaround in the nickel prices had been sharp and not what the most would have expected to be. The star performer of the year 2014, turned out to be one of the worst performers during this year, that was treading water near six year lows, recently. Before we discuss how the future course of action is likely to unfold for the base metal, let us just have a quick recap of the story so far. The bulls took the luxury of pushing the prices to new intermediate highs last year on the news of export ban of nickel ore from Indonesia, the biggest exporter amid expectations of supply shortages. However, the feast was short lived and the prices succumbed to selling pressure, as the expected shortage gap was filled with the exports from Philippines supply hitting the Chinese markets. Also, the reduced demand from China, the biggest consumer and surplus in the metal in the past few years, have weighed on the metal, that is used primarily in making stainless steel utensils. The inventories of the metal are also seen piling up at LME registered warehouses, and have reached near their highest ever levels recently, at more than 4,34,000 tonnes .The overall decline in the prices of crude oil has also resulted in denting the demand for the base metal, as the pipelines used for transporting and storing crude are made from nickel. However, prices have corrected significantly over the past many months and now seem to have formed an immediate bottom, amidst the pick-up in global demand for nickel ,that is expected to increase to 1.94 million tonnes in 2015 versus 1.87 million in 2014, according to the INSG. On the other hand, the output of the metal is estimated to reduce to 1.96 million tonnes this year, in comparison to a figure of 1.99 million in the previous year. The metal might get an underpinning going forward, as the global nickel surplus might contract significantly to about 20,000 tonnes this year, as compared to last year's surplus of 120,000. This can be attributed to some production cuts for nickel pig iron(NPI) from China ,as Chinese economy continues to grow at a slower pace and as Indonesia banned nickel ore exports last year in January. Nickel pig iron is a low nickel content substitute for refined nickel, commonly used by Chinese stainless steel makers. Along with this, nickel prices are likely to benefit from the news that traders were stepping up imports of nickel and related products into China, after domestic nickel pig iron plants shut due to a crackdown on pollution. To add on , there are expectations that China might come out with further easing measures to boost its economy, that is seen growing at the slowest pace in last six years. This would be another supportive factor for the prices. On the technical front, lot of consolidation has been witnessed in the prices after the sell-off, where levels of Rs.780-775/kg are acting as a strong support zone. The counter now seems to carve a bullish reversal pattern and long positions can be initiated around Rs.830-835/kg, for the targets of around Rs.920-935 /kg in the near term , however a stop loss below Rs.790/kg can be placed on a closing basis.