Nickel prices: Nickel under pressure, may see more price erosion

In September 2021, Nickel prices slipped about 6 per cent on the LME, whereas prices on the ended lower by 1.2 per cent. Nickel prices rose earlier in the month, on booming demand from the stainless steel segment following the resumption in global economic activities and expansion of the EV sector.

Along with increased stainless-steel production, depleting inventories across exchanges hinted at potential tightness in the global Nickel market.

However, Nickel and other industrial metal prices remain under pressure in the latter half of the month, following the increased energy usage limitations in China. Power consumption norms in the major metal-consuming nation ignited fears of restricted supply, suppressed demand and slowdown in China’s economic recovery.

Imposition of restrictions began in March 2011, when Chinese officials ordered some of the energy intensive industries in Inner Magnolia to limit the usage in order to curb the carbon emission levels. Limitations were later imposed in many prime producing regions like Yunan, which raised worries of potential shortage in global markets.

China’s industrial sector, which was already under pressure due to a spike in raw material prices, was further hampered following increasing restrictions. Weakening demand from China and expectation of further tightening of the energy consumption norms outpaced all the supportive factors and pushed most of the base metal prices lower.

Also, US Fed Chair Jerome Powell indicating a sooner-than-expected withdrawal of the expansionary policy given the steady recovery in US economy further clouded the outlook for base metals.’


Outlook

Industrial metals recovered from the pandemic low on the back of a stellar recovery in China’s economy and massive stimulus infused by global Central banks. However, the recent slowdown in China’s economy and US central bank moving towards a hawkish policy has clouded the near-term outlook for Nickel and other industrial metals.

Further pressuring market sentiments were China’s plans to continue with the rare release of the metals from the state reserve in an attempt to ease the high prices. In the fourth round of metal auctions, scheduled on October 9, 2021, the National Food and Strategic Reserves Administration will release 30,000 tonnes of copper, 50,000 tonnes of zinc and 70,000 tonnes of aluminium taking the total amount of metal released in 2021 to 570,000 tonnes.China’s plans to release metals soon after the weeklong public holiday from 1st to 7th Oct’21 amid bleak demand prospects which might keep the markets cautious.

We expect Nickel prices to trade lower towards Rs 1,360 a kg in a months’ time (CMP : Rs 1,390)


(Yash Sawant is Research Associate at Angel One. Views are his own.)