Nickel prices witnessed one of the most volatile sessions in the past month due to the growing trade tensions between the US and China. The lower prices at LME tempted traders and speculators to make longs based on robust demand outlook for nickel by 2020, supported by the growing demand from electric vehicle makers to use in batteries.

Prices at LME were trading higher by 5.84 per cent by the end of the July contract, well supported by battery demand outlook and surge in steel prices in China. The prices at MCX have also followed the same cues and are up by around 8 per cent in July contract. Prices soared despite China’s construction steel rebar prices retaining a winning streak for weeks. In the previous month too, demand outlook had bolstered over expansion in global steel production, which rose 5.8 per cent in June from a year ago, while output from top producer and consumer China rose 7.5 per cent.

Meanwhile, earmarked, on- and cancelled warrants at the LME-tracked warehouses and inventory levels have also supported the outlook for prices.

The inventory levels at LME were lower by around 6.5 per cent, suggesting buyers befitted from the lower prices and took deliveries. Although the cancelled warrants fell by 6 per cent, actual demand was more than speculative.  By the end of the month, prices fell due to the use of electronic trading system to determine closing prices of 3M nickel contract instead of open outcry. Prices fell more than 4 per cent at LME and the same at MCX futures the prices were down by 5 per cent.  The other setback on prices came from Shanghai Futures Exchange which decided to raise its transaction fees for November nickel futures to 6 Yuan/lot from 1 Yuan from Aug.3.

With the ongoing trade war, there is moderate risk of US imposing trade restrictions on steel imports from India. However, rebounding steel margins could help domestic steel companies. As per Sumitomo Metal Mining, Japan’s biggest nickel smelter, the global nickel market is expected to see deficit widening to 88,000 tonnes this year, from 72,000 tonnes last year, amid solid demand from stainless steel and battery industries. Similarly, demand is also expected to increase 11 fold between 2017 and 2025, with batteries predicted to become the second largest consumer of nickel after stainless steel market.

Meanwhile, with the Chinese authorities looking to maintain a more ‘vigorous’ fiscal policy to support growth amid rising economic headwinds, demand for nickel and other metals is set to rise from the world’s top consumer.

The author is a Fundamental Analyst with Karvy Comtrade