Nickel: Huge Rally Could Get Even Bigger On Russian Sanctions 

It’s one of those industrial metals that typically doesn’t get as much press as, say copper, aluminum or  palladium.

Yet, nickel should be getting more headlines now for two reasons:

1. It is the second best-performing market on the London Metal Exchange this year.
2. It could see more price gains in the near term from the squeeze applied on Russia, one of its biggest producers.

Nickel hit near 11-year highs of $25,625 a ton on the LME last week due to dwindling inventories of the metal in warehouses approved by the exchange, and in response to the litany of international sanctions aimed at Russia over its invasion of Ukraine.

Nickel was among the commodities singled out for powerful price gains by Goldman Sachs as the Russian raid of Ukraine heightened this week.

Charts courtesy of skrcharting.com

Used in stainless steel and rechargeable batteries among others, nickel is the second biggest winning metal on the LME for 2022. It has gained 25.9% year-to-date, just behind the 26.4% notched by aluminum.

Forecasts that nickel supply will fall short of rapidly growing demand from the electric vehicle industry have helped the metal rally 40% without pause over the past six months.

Now, with the Russia-Ukraine crisis intensifying and sanctions severely restricting Moscow from accepting international payments for its commodity trades, nickel could go a lot higher. There is a 90% gap between its current pricing and its record high of $49,675 set in April 2007.

Nickel is “one of the main commodities linked to Russia given their importance to supply,” Ryan McKay, commodity strategist at TD Securities, was quoted saying in a Feb. 22 Bloomberg story.

“So the latest events keep supply risk for the metal particularly high, especially as inventories are already at very low levels.”

Nickel inventories on the LME have fallen to the lowest since 2019 with a steep backwardation—when cash prices are much higher than futures—pointing to very tight fundamentals, Bloomberg noted.

The annual amount of nickel mined in Russia was estimated at 250,000 metric tons in 2021, marking a decrease compared to the previous year, according to data by Statista.

Between 2017 and 2018, nickel production across Russia increased by nearly 60,000 metric tons. With 7.5 million metric tons of nickel reserves, Russia was the fourth richest country in that metal.

Furthermore, Russia is the third largest producer of nickel from mines, following Indonesia and the Philippines. In 2020, the value of nickel and nickel products exported from Russia was the highest worldwide at approximately $3 billion. Canada and the United States ranked second and third, respectively.

The largest nickel-producing company in Russia is Nornickel, also known as Norilsk Nickel. It produced approximately 172,400 metric tons of nickel in 2020.

Nornickel owns nickel reserves on the Taymyr Peninsula in Siberia and the Kola Peninsula in Northwest Russia. Furthermore, the company has a nickel refinery plant in Finland and co-owns a nickel production site in South Africa. The total revenue of Nornickel, which also produced other metals such as palladium and copper, exceeded $15.4 billion in 2020.

At the time of writing, benchmark three-month nickel on the LME was at $26,123.50.

Technically, the metal has immediate potential to tack on almost $3,000 more, and a further $6,000 if the upside remains—making for a grand $9,000 or 35% more, said Sunil Kumar Dixit, chief technical strategist at skcharting.com.

He said nickel has accumulated strong momentum after a long consolidation within the broad ascending triangle formation and a breakout that came at $21,000.

“The middle Bollinger Band at $21,400 should provide support to resume its bullish move for a retest of the $26,000 level and extend to ascending the triangle breakout target area of $28,500 to $29,000,” said Dixit. Adding:

“A post strong buying reaction above this zone can further induce the metal for yet another big leap to $35,000.”

But nickel’s rally of the past six months has also raised some overbought flags that could become reinforced if the support from the Russia-Ukraine saga fades, cautions Dixit.

The stochastic reading of 75/65 was positive for nickel, but it also exhibited an overbought Relative Strength Indicator at 72, which supports a short-term correction and shows a bearish candle on the weekly chart, he said.

“A break below the 5-week Exponential Moving Average of $24,000 should prompt a short term reversal to retest the breakout point of $21,000,” Dixit said.

“These big changes are subject to how the geopolitical situation unfolds over time.”

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Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.