Nickel pares recent gains on profit taking

Thursday, May 15, 2014

After rallying to a 27-month high at the beginning of the week three month LME nickel prices traded lower for the second straight session yesterday with the correction extending during early trade today as prices touched $18,090/tonne. Prices at one point this morning were trading as much as 16% below Tuesday’s peak of $21,625/tonne as market participants reassessed the recent impulsive rally. Investors, distracted by a combination of the recent shuttering of Vale’s New Caledonia processing plant, ongoing unrest between Russia and Ukraine and an Indonesian ban on exporting unrefined ore pushed the price towards multi-year highs on speculation that fundamentals would tighten. However, LME inventory data has indicated an almost 7% year-to-date increase in stocks with warehouse inventories holding firmly around 280K tonnes since mid-April. Given the speed and volatility of both the rally and subsequent sell-off, most likely by longs liquidating positions, the potential for further declines toward previous consolidation around $18,000/tonne remains a possibility. 

Japanese Q1 GDP surprised on the upside as the economy grew at an annualised rate of 5.9% q/q in Q1 against expectations of 4.2% q/q. Despite the bullish data which indicated the fastest pace of growth since 2011, benchmark equity indices struggled to lift higher as Mizuho, Mitsubishi UFJ and Sumitomo Mitsui all forecast lower earnings for the year, dragging financials lower. The yen strengthened to 101.66 early on before pushing back towards 102.00 against the dollar.

Palladium prices surged higher for the third straight session yesterday, tracking gains in platinum as ongoing industrial action in South Africa threatened supply. Despite miners reassuring market participants that they had ample reserves to ensure continued business operations, the longer than anticipated shutdown of significant output has seen stock levels decline. Palladium prices rallied towards $830/oz yesterday, the highest level since July 2011 while spot platinum prices closed above $1,480/oz. Both precious metals have since pared some of those gains this morning on short term profit taking.

A busy day for economic data today got underway with flash Q1 German GDP which indicated the economy expanded 0.8% q/q, slightly exceeding expectations of 0.7% q/q growth. Investors will be paying close attention to eurozone inflation and GDP data expected shortly while later today a stream of US data will keep investors occupied, notably CPI, NY Fed manufacturing, jobless claims and the Philly Fed.

LME nickel prices correct lower on short term profit taking

LMNIDS03 Comdty LME NICKEL 3 2014 05 15 07 40 11

Warehouse stock levels remain firm around 280K since mid-April

LMNIDS03 Comdty LME NICKEL 3 2014 05 15 07 25 57

Palladium prices rally higher on industrial action in South Africa

XPD Curncy Palladium Spot Oz 2014 05 15 07 44 37



Events for today

0700

DE

Q1

GDP Flash

1000

EZ

Q1

GDP Flash

1000

EZ

Apr

Inflation Final

1330

US

Apr

CPI

1330

US

May

NY Fed Manufacturing

1330

US

w/e

Jobless Claims

1530

US

w/e

EIA Nat Gas

1415

US

Apr

Capacity Utilization

1500

US

May

NAHB House Market

1500

US

May

Philly Fed Index

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