Nickel traded in green in later part of the month as a surge in stainless steel demand, supply constraints and falling stocks kept nickel market deficit in the month, but the shortfall may narrow in upcoming months as production rises, according to a Reuter’s survey.

The survey of 17 metal analysts carried out over the last four weeks showed the nickel market was expected to see a deficit of 32,000 tonnes in 2010. Demand for stainless steel has experienced a very strong recovery, to the benefit of nickel prices. Stainless steel accounts for two thirds of nickel demand.

From the last year, prices have climbed by 58%, helped by strong demand and supply disruptions, including an almost year long strike at Brazilian company Vale's Sudbury mine in Canada. The strike, one of the longest and most acrimonious labour dispute in Canada's mining history, ended this month. Sudbury and Vale's Voisey's Bay nickel mine in eastern Canada produce more than 12% of the world's nickel.

However, the upside in Nickel may be capped by potential supply of nickel pig iron, a new production process applied in China, for which there is abundant but unknown capacity.

Unreported stockpiles of Nickel in China may also help to keep the market tight. Nickel pig iron production may help offset supply shortages, although some traders said that the production of the lower grade nickel is slowing.

With restocking efforts by stainless steel mills largely complete, growth in nickel consumption is expected to be slashed in coming months. Meanwhile, growth in refined supplies may continue to pick up steam, sharply narrowing the projected deficit in 2011.

As per technical’s, nickel prices have been provided cushion by the level of Rs880/kg ,the level where it consolidated for long before picking up during the later part of the month .It ignited buying at lower levels and had thus moved up sharply bestowing decent gains upon investors holding the metal.

Though the metal displayed some choppy movement and traded in a range for quite some time, but finally broke out from the pennant formation and is gradually expected to leap forward towards its major resistance pegged at Rs1050/kg, though some bouts of correction cannot be ruled out before it finally budges towards the same.

Courtesy: Religare Commodities

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