Nickel quotes were actively growing during yesterday's trading session. Prices hit the highs of the last two months and just slightly under the 26000 level, but by the evening all the growth was lost and the trading closed with a loss by 1.7%. The correction was continued today, especially because the bears have the target to move quotes to the unclosed gap of the previous week at 23700.
Prices for nickel and other industrial metals negatively reacted to publication of disappointing statistics on industrial production in different countries. Yesterday the Philadelphia Fed reported a drop in manufacturing activity, and today PMIs in Germany, Great Britain and France are worse than expected. In general, the industrial PMI for all European Union countries also did not satisfy market participants, as it fell from 47.3 to 45.5, while it was expected to rise to 48 points.
A drop in manufacturing activity could reduce demand for nickel. Meanwhile, according to the International Nickel Study Group (INSG), last year's market of the metal has already moved into surplus. Supply exceeded demand by 112,000 tons, which is the largest nickel surplus since 2014. Indonesia had a 48% share of global nickel production in 2022. Increased production in the country has significantly strengthened supply.
At the same time, current nickel quotes do not fully represent the real situation in the market of the physical metal. Both the London Metal Exchange (LME) and the Shanghai Exchange (SHFE) trade in nickel grade 1, which is used in the battery manufacturing process. However, Indonesia's production boost is connected to nickel grade 2, which is widely used to smelt stainless steel. According to Reuters, about 70% of the world's nickel sales are currently at a discount compared to LME quotes.
The drop in nickel prices may continue until the gap closes at 23700. The level of 24000 will be an intermediate target for the correction.
The following trading strategy option can be suggested:
Sell nickel in the 24600-24800 range. Take profit 1 – 24000. Take profit 2 – 23700. Stop loss – 25400.
This content is for informational purposes only and is not intended to be investing advice.