European Commodities: After Asian Supply Shock, What's Next for Nickel?

From February 2022, and during the following 3 months, nickel prices (P8Y00) had a record jump up to 100,000/ton, triggered by the start of the Russian invasion of Ukraine and the subsequent sanctions on trading of Russian nickel. In March 2022, with prices rallying over 250%, the London Metal Exchange (LME) suspended the trading of this industrial metal.

Following this pricing chaos, a massive oversupply came to the market from China and Indonesia, both producing 70% of world output - and particularly Indonesia, controlling 50% of total production. This situation sharply started to depress prices from May 2022, but especially from January 2023.

The crash from 33,000 in August 2022 to 15,840 in November 2023 was particularly painful for miners in China and Australia. Now, there are official initiatives to curtail production in China and Indonesia to support the market prices.

Australia is also cutting production, and some operations have closed down. As one example, BHP Billiton BHP (the biggest miner) announced that it will close down Nickel West.

The long price slump has affected the operations of many projects in West Australia with severe losses already. The forecast for the rest of 2024 and for the next years is still gloomy, as a new Chinese-Indonesian nickel producer, PT CNGR Ding Xing New Energy, will have its nickel listed on the LME, adding to further oversupply concerns.

Having said that, prices seem to have bottomed out from 15,850, and finally started to recover from February 2024. There is a mix of speculation about future production cuts, with shutdowns in Australia helping this tentative recovery.

On the demand side, nickel is fundamental in the production of electric car batteries, a market which is expected to be booming in the coming years. 

Barchart Opinion, based on technical indicators, is showing "buy" signals for short, medium and long term. The weekly nearby chart shows the 10-unit exponential moving average (EMA) crossing the 20 EMA 2 weeks ago, but still below the decisive 50 EMA. 

Last week, a high volume of 6,804 contracts was traded, which was last seen in January 2022 - indicating momentum.

So far, all is signaling an incipient recovery; will the market aim for 25,000 again?

Positive Commodity Performers This Week in Europe

Milling Wheat (MLK24) +7.93%

The price action is showing momentum from the low of 196.75 (March 6). Three weeks ago, we saw for the first time this year the 20 EMA bullishly crossing the 50 EMA with a very promising bullish breakout. 

Below-average rain in the U.S. and Russia is supportive, as well as the ongoing conflict situation in the Black Sea.

Robusta Coffee (RMN24) +1.7%

In my last article, I stressed that last week's red candle was temporary as the setting so far has all the bullish signals, with all EMAs pointing upwards and accelerating, complete with higher highs and higher lows for each new candle. Continue to track the 10 EMA as the dynamic support if you are riding the current rally at the current 16-year-record-high prices.

Vietnam (30% of global robusta supplies) still reports dry conditions due to the "El Nino" weather pattern, and as producers are hoarding coffee, it will likely keep supply tight. 

Corn (XBM24) +3.10%

Dry conditions in the U.S. and Russia, sanctions on Russian agro exports, and attacks on Black Sea ports are the pressing factors right now supporting corn prices.

The technical indicators on the chart are very bullish, confirmed by all the 10, 20, and 50 EMAs crossings, where the 10 EMA has served as a very effective support.

The rally from 170 in February 2024 up to the current 207 has been impressive. Having said that, compared to the levels of 2022, prices still offer relatively good value, so this could be the start of a much higher upward move.

Negative Commodity Performers This Week in Europe

UK Natural Gas (NFK24) -8.27%

The main reason for the drop was the surprise in EIA inventories. The storage report that came up this Thursday was higher than expected. In Europe, natural gas is falling as milder weather is forecast for the next months. However, there are outages from the Norway supply to Britain, which will give some support to prices.

Storage levels in Europe are at a healthy 60%, plus the increasing LNG exports from the U.S. might keep prices with limited upside.

Tin Refined 3M (Q2Y00) -3.26%

In my previous articles, I commented on serious shortages in Indonesia, Myanmar and Congo. Tin is trading at around 32,000 and has come back from the recent high of 36,050, a level not seen since June 2022. It is currently testing the 20 EMA, which has not failed as an entry point for long traders since February 2024. The candle pattern suggests a possible resumption of the bullish trend. Breaking down the 20 EMA should be cause for concern for long positions. 

There are still worries about Indonesia exports, accounting for over 17% of world supplies, and the fundamental situation in Myanmar remains tense. 

Moreover, the declining stocks in the LME have reached 4,190, which is the lowest since last July. So, tight supply is still controlling the trend.

Aluminum HG 3M Cash (P4Y00) -1.95% 

From April 12, new sanctions have blocked the LME and CME exchanges to accept deliveries of Russian aluminum. This is severely limiting the stocks to the lowest in 2 years. Prices are currently trading at 2,550 and testing the 10 EMA, which has been a very reliable support since March 2024. Daily trading volume above 25,000 contracts is statistically high, supporting the strength of the trend.

Aluminum is showing a close correlation with nickel, as well. Look out for any move below the 10 EMA as a warning to exit for long positions. For now, the odds are with the longs. 

On the date of publication, Cesar Marconetti did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.