Nickel was the best performer across the commodities complex during the first quarter of the year 2010, with a gain of 34.9 percent. The metal had hit $27,590 on April 20 at LME, highest since May 2008, which is almost 50% of all time high of $51800 made in May 2007. The sharp gain in this first quarter was mainly due to short term supply worries and healthy fund flows into the counter despite rising stocks at LME.

• Strike at Xstrata’s Sadbury complex in Canada continues to loom as a threat to the production activity. While the nickel operations of Vale Inco, which has an annual capacity of 160000 tonnes per year, have been shut down since the July of 2009, resulting in it tightening the availability of the metal in North America and rising physical premiums.

• With strikes at nickel mines increasing potential supply disruptions and Europe and America stepping up efforts to restock and thirdly, with almost 100,000 tonnes of nickel at LME Warehouses stuck in finance deals, the market may be in a much tighter condition than perceived. The stocks of the metal monitored by the LME remains to be around 166000 tonnes, the highest in more than a decade.

• However, hitherto resilient prices of nickel slid during the beginning of February following the weakness in rest of the metals, mostly due to technical selling. But short term fundamentals continued to point up with rising cancelled warrants at the LME and prolonging supply disruptions.

• Reports showed that cancelled warrants at LME rose to 4.6% of the total stocks, which is highest as compared to that of other metals in the complex. Improving demand from the stainless steel industry, which consumes more than 50% of the total nickel produced in the world, is also supporting the metal to rise.

Inventory:
LME nickel stocks fell in March, helped by the seasonal demand. It ended the month at 157,512 tonnes, or around 42 days of demand, down from 163,224 tonnes the previous month. In early February, LME inventories reached historic high of 166,476 tonnes.

Price analysis:
Nickel - LME 3 Month forward showing no respite from the unprecedented rally it displayed over last three months. On weekly chart, the rally actually began in Feb 2010 after finding a support at $16,995 and a sharp run up has been witnessed thereafter. The momentum has sparked after holding the 50 weeks EMA and it has been seen trading in rising trend channel between $19,500 -$28,000.

If it breaks upper channel resistance at $28,000, it is likely to test a crucial point of $30,500 {which is 50 % Fibonacci retracement of $51,800 to $8,850} and then $35,000. On the lower side, immediate support is at $24000, while major support level is seen at $21150.

Outlook: The market is facing a resistance at $28,000 levels. If it breaks this level it may test $30,500 or even higher. Otherwise a mild correction can be seen till the support of $25,000 and $22,600.

MCX nickel started its uptrend in Fed 2010, after finding a foothold at 795. Prices witnessed unrelenting strength since then, reaching 1224.70, the highest in almost one and a half year. The momentum has sparked after holding the 50 weeks EMA and it has been seen trading in rising trend channel between 920-1340. On the lower side, immediate support is at 1125 and major support at 1050 if break below it can test even 920.Currently trading around 1190.

Outlook: The market is facing a resistance at 1230-40 level. If it breaks and sustains above the level, it may test 1300 and even 1340. Otherwise a mild correction can be seen till the support of 1125 and 1050.

Courtesy: JRG Commodity research

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