Market Strategy

Nickel approaching critical long-term support

Gurumurthy K. | Updated on October 19, 2013 Published on October 19, 2013

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Nickel, an industrial metal, is mainly used to manufacture stainless steel. China leads the table in both production and consumption of refined nickel. In 2012, China contributed about 33 per cent of the total global production and consumed about 48 per cent of the consumption. India’s annual consumption of refined nickel is about 2 per cent on average of the total consumption. India depends entirely on imports to meet its demand.

SUPPLY THREAT

The futures contract price of Nickel traded on the London Metal Exchange has tumbled about 51 per cent since February 2011 because of increasing oversupply in the market. However, the situation may change in the coming year. Indonesia, the top exporter of nickel ore in the world, is planning a ban on the exports of its unprocessed ores from January 1, 2014.

China imports 60 per cent from Indonesia. If this ban comes into effect as planned from January next year, then the current oversupply condition could take a big turnaround. This ban could be a big trigger in reversing the current downtrend in Nickel price and can take the price much higher in the next year.

In this week’s dissector, we examine the outlook of the Nickel futures contract traded on India’s Multi-Commodity Exchange and in the LME. The MCX contract has closed for the week at Rs 869.3 and the LME contract at $14,160.

LONG-TERM VIEW

The LME Nickel futures contract is in a strong downtrend since February 2011. But its price is nearing a crucial long-term trend support at $12,000 which could halt this downtrend. A bounce back from this support can take the price higher towards $20,000. On the other hand, if $12,000 gets broken, the contract can decline to test $9,000-8,000.

The MCX Nickel contract witnessed a sharp fall from the high if Rs 2,253 recorded in April 2007 to a low of Rs 442.3 in December 2008.

The corrective rally of this fall found resistance at Rs 1,327.8 in February 2011, just below the 50 per cent Fibonacci retracement resistance level of Rs 1,348 and the contract is coming down again since then. Failure to rise past the resistance at Rs 1,348 keeps the long-term downtrend intact for the MCX contract. Important support is at Rs 780, which if broken, can trigger a fresh fall. A rise from Rs 780 can be restricted to Rs 1,000 which is a strong technical as well a psychological resistance.

While below Rs 1,000, the contract would remain vulnerable to break Rs 780 and fall to Rs 600-500 in the long-term.

This fall to Rs 600-500 will be avoided only on a strong breach of Rs 1,000 that will open doors to target Rs 1,250-1,300 on the upside.

MEDIUM-TERM VIEW

The MCX contract is trading in a bear channel since November 2011. The channel support is near Rs 800. While above Rs 800, a rise to test the channel resistance at Rs 950 looks likely. The contract is expected to remain in this bear channel for some time.

The strong fall from the August high of Rs 1,004 is finding support near Rs 840 over the last couple of weeks. The contract could now see a corrective rally to Rs 900 while it remains above Rs 840. If the resistance at Rs 900 is broken then the contract can rise further higher to Rs 920. Else, it can fall back to Rs 840 again.

>gurumurthy.k@thehindu.co.in

Published on October 19, 2013

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