Nickel prices hit 2003 lows as supply glut, Fed hike remain in focus

Tuesday, November 24, 2015

Three month LME nickel prices slumped to their lowest level since 2003 as prices extended declines for a sixth straight session. Supply glut concerns pushed the metal past its 2009 lows as it dropped over 4% yesterday, bringing month to date losses to a meaty 21%, as investors weighed up a sluggish demand outlook amid a backdrop of ample supply. Year-to-date the metal, most commonly used for stainless steel, has lost 46% and the downward pressure shows no signs of abating any time soon with a stronger dollar and prospects of a US interest rate rise in December adding further pressure to the outlook for commodities. Prices have been offered some modest support around $8145/tonne early on this morning, recovering the majority of the previous session’s losses as prices trade back around $8,450/tonne.

With the last OPEC meeting of the year looming, due to be held on December 4th in Vienna, investors are wondering what the members will make of the year where we have seen crude prices trade around multi-year lows and what the coming year will bring for the group. Not much it seems, if activity throughout the second half of the year and comments ahead of the meeting are to be believed. After front month Brent prices hit a fresh year-to-date low towards $40/bbl earlier this year it seems that crude futures have struggled to breakout of the lower range that has dominated trading activity for much of Q3 and Q4 so far. OPEC members led by Saudi Arabia, its biggest producer, are holding firmly to their commitment of maintaining market share, keeping OPEC output toward record levels at the cost to non-OPEC production which has seen a considerable curtailment throughout 2015. Analysts do not expect the outcome of next week’s meeting to be radically different from the current strategy and while smaller OPEC members, namely Venezuela, Algeria and Iran have expressed their frustrations at the current market price given the steady decline in non-OPEC output it seems the tactics are working, albeit very slowly. Expect more pain for producers in 2016, a market rebalance on such a scale isn’t easily achieved and certainly doesn’t happen overnight.

The dollar index flirted with 100.00 yesterday as intraday moves briefly touched this level before paring back slightly as investors maintained their positioning ahead of an expected US rates rise next month. The greenback has held onto recent gains against a basket of major currencies with the dollar index having rallied almost 6.5% since the middle of October. Investors increasingly expect the US Fed to begin raising interest rates in December after Fed Chair Janet Yellen offered further hints on Monday. However, investors would be wise to pare back their expectations as monetary tightening will happen “gradually” as “an overly aggressive increase in rates would at most benefit savers only temporarily.” Nonetheless, the anticipation of a rates rise is welcome news for US investors after years and years of historically low rates and policymakers are wise to express caution and would do well to learn as much as they can from Japan, which has been dealing with near zero rates for the best part of three decades.

LME nickel prices extend declines on supply concerns

LMNIDS03 Comdty LME NICKEL 3 2015 11 24 07 32 01

Front month Brent futures likely to remain under pressure into 2016

CO1 Comdty Generic 1St CO Fut 2015 11 24 07 52 26

Dollar index holds near 8 month high on Fed hike expectations

DXY Curncy DOLLAR INDEX SPOT 2015 11 24 08 02 24

Events for today

0700

DE

Q3

GDP Final

0700

DE

Nov

Ifo Business Climate

1330

US

Q3

GDP

1330

US

Q3

Personal Consumption

1500

US

Nov

Richmond Fed

1500

US

Nov

Consumer Confidence Index

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