By Raul de Frutos
Nickel prices finally climbed to five-digit territory on Monday.
Nickel on the London Metal Exchange finally broke above resistance levels that limited any price surge for the past eight consecutive months.
This bullish price action follows a broad recovery in the whole metal complex this year, which gives more credibility to nickel's bulls.
The Industrial Metals ETF hits an 11-month high. Source: Stockcharts.com
Our historical analysis shows that a metal has far greater upside potential when the overall commodities market is in bullish mode, while its chances of going down increase in a falling commodities market. Although nickel's fundamentals don't look that bullish, the metal is definitely getting a boost as more investors jump into the industrial metal complex. In the chart above, we see how base metals are on the rise since January.
Another factor helping nickel prices are expectations of lower nickel pig-iron exports from the Philippines. Ore producers in the Philippines warned earlier this year that they would cut production due to low prices. So far, Chinese imports of Philippine ore fell by 27% in the first five months of the year.
In addition, nickel ore shipments from the Philippines could end and result in a disaster for Chinese buyers. The new President-elect, Rodrigo Duterte, ran on an anti-mining platform and could impose an Indonesian-style raw ore ban, which could potentially disrupt supplies for Chinese buyers. However, even if this is true, this will take time to happen. Indonesia, itself, took five years until passing legislation on a minerals export ban and actually implementing it.
What This Means For Metal Buyers
Since 2011 until now, a "buy down the market" strategy has worked pretty well, but the market environment has changed. Nickel/Stainless buyers should be prepared for different scenarios, or their budgets could get hurt.