Nickel - Fresh Highs…More to Come?
metalsinsider.com
In this context, trading in 3-month metal has become something of a marginal affair. Monday's $1,100 day-to-day gain to $31,850 was based on some light speculative buying activity--but we do mean "light"--just as a small round of profit-taking on Tuesday and early Wednesday took it back down to $30,400, the location of the 10-day moving average which is nicely defining the most recent part of the up trend.
When that moving average held, the market extended its rally up back up to $31,675 at Thursday close with Friday bringing another spurt up to $32,050—another fresh all-time high on a closing basis and a week-to-week gain of $1,300.
But the tonnages flowing through the system remain marginal. Even the CTA systematic fund community, whose trading activities are defined by the sort of upwards momentum shown by nickel over the last month or so, has not lifted significantly its collective long position, which has hovered either side of 60% of potential capacity for most of the month.
Rather, it seems to us that nickel is still going higher because there is no way it is going to go lower--barring the odd technical correction such as that seen Tuesday and Wednesday last week--while cash liquidity is such a potential minefield for shorts.
The problem for would-be bears and existing short position-holders is that this technical tightness is not an artificially- engineered squeeze but rather symptomatic of a structural squeeze on metal units.
The World Bureau of Metal Statistics estimates that the global refined market recorded a deficit of 70,000t in the first eight months of this year. If that makes for uneasy reading, consider the prognosis made by Steve Barnett, president of the Nickel Institute. Addressing an industry conference in Australia , Barnett warned that the nickel supply gap could extend over the next decade such is the shortage of projected new supply against demand fuelled by China 's expansion of its stainless steel capacity.
In terms of a rebuild in LME nickel inventories, the best that can be hoped over a shorter-term time horizon is that the stainless re-stocking cycle in the western World runs out of momentum towards the end of the year as is forecast by some steel sector analysts. In the interim, everything is still pointing upwards…or maybe that should read, nothing is pointing lower.
Weekly Metals Analysis
23 rd October 2006
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