Commodity Call. Nickel continues to slide

Nickel prices have slumped in the last four weeks following a short rally. The nickel futures contract traded on the Multi Commodity Exchange (MCX) is down over 10 per cent from its October high of ₹699.9 per kg. It is currently trading at ₹626.2 per kg. Global nickel spot prices have fallen in recent weeks, dragging the domestic futures contract also along with them.

Weak demand as a result of the slower growth in China has been the major factor driving nickel prices lower for more than a year now. The recent data releases from the country continue to stoke demand concerns in the market. Industrial production, inflation and trade data were released last week. China’s industrial production fell to a six-month low of 5.6 per cent in October from 5.7 per cent in the previous month.

The data also failed to live up to the market expectation of a 5.8 per cent growth. Consumer Price Index (CPI) inflation eased to 1.3 per cent in October from 1.6 per cent in September. On the trade front, the data was grim as China’s exports fell 6.9 per cent in October and imports tumbled 18.8 per cent.

These recent data releases have dashed the hopes of a quick revival in the Chinese economy. This has added to the pressure on commodity prices. Nickel prices could continue to remain under pressure unless signs of a demand pick-up emerge from China, the world’s largest consumer of this metal.

On the charts, the recent reversal in nickel prices has intensified the downtrend that has been in place since last year. Prices are expected to fall further in the coming weeks.

The short-term trend in nickel is down. The strong downtrend that had commenced from the high of ₹932.4 in May halted at a low of ₹618.4 in August. The contract, thereafter, paused and consolidated sideways. The price action in this consolidation phase suggests the formation of a wedge pattern. The decisive fall below ₹650 early this month confirms a bearish breakout from this wedge pattern. This has increased the danger of the contract falling below ₹600 for the first time since 2009. Such a fall can drag the contract lower in the short term to ₹570 — the target level of the wedge pattern.

Key resistance for the contract is at ₹660. Only a strong break above this hurdle will ease up the pressure and take the contract higher to ₹690-₹700 once again.

The downtrend that had begun in December last year remains intact. Strong trend line resistances are poised around the psychological ₹700 level and at ₹750. The contract will have to surpass these hurdles decisively for a trend reversal.

But such a strong rally looks unlikely at the moment.

Significant support for the contract lies in the ₹570-₹550 zone. A strong break below ₹550 will increase pressure on the contract and drag it to ₹500 or even lower levels thereafter. Such a fall will also increase the danger of the contract revisiting the pervious lows around ₹450 recorded in 2008.

On the global front, nickel prices on the London Metal Exchange (LME) are under pressure. The bounce-back rally from the August low of $9,300 a tonne was short-lived. The price has reversed sharply lower after recording a high of $10,710 in October. It is currently poised at $9,389.5 per tonne. Immediate support is at $9,350. A strong break below this can take the spot price lower to $9,150 and $9,000. A key resistance for the LME spot prices is in the $10,850-$11,000 zone. Only a strong break above $11,000 will break the downtrend, but the likelihood of this is quite low at the moment.

Weak global price trends also add to the bearish tone in the domestic MCX futures contracts as the latter moves in tandem with LME spot prices.

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