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Analysis: Nickel weakness showing no sign of easing

London — Nickel has fallen from grace in recent weeks, having been the sector darling for much of 2019, leading to talk about how low the metal can head before bottoming out.

Nickel had been riding high throughout the year on supply fears related to an export ban from the world's number one producing nation Indonesia. It was detached from other base metals, which were persistently dogged by the on-going China-US trade spat.

Nickel, which started the year at $10,670/mt, hit a high of $18,850/mt in September.

However, the Indonesian ban then seemed to be less of a concern than poor demand, and the price rapidly corrected to a recent low of $13,115/mt on December 4.

Bank of America Global Research noted that nickel rallied 62% over the summer, "a dynamic that was heavily influenced by a short squeeze on the LME and therefore not fundamentally justified. Many of the usual metrics, including canceled warrants and forward curves have now been normalizing, as prices dropped by 30%, suggesting the nickel market can now refocus on fundamentals".

One of those fundamentals, in BoA's view, was growing demand from the electric vehicle sector. "We have been long-term nickel bulls on a view that the electrification of autos would boost battery demand and push up nickel usage along with it."

With the price now trading in a range of $13,000-$14,000/mt, and the year-end on the horizon, it was doubtful there will be any return to stellar form for nickel, according to sources.

Physical traders seemed to be neutral on the metal, with no new bookings being fielded even with the price crash.

Eyes will be on what Indonesia actually does, what that means for supply, and how bad demand really is from the stainless steel sector.

A sign that demand was weak was mills pushing orders back to 2020, sources said.

Despite that, Citi said: "We are bullish nickel on a 6-12 month view and recommend scaling in from around current levels. We see the risks surrounding the price outlook as skewed to the upside by around 3:1 at $14,000/mt ($13,000/mt near-term downside risk vs. a $17,500/mt 2020 point price target)."

Meanwhile, "current nickel prices are digging into marginal production costs and in our view pricing a 'recession- like' demand outlook," Max Layton, commodities analyst at the US investment bank told clients.

-- Ben Kilbey, ben.kilbey@spglobal.com

-- Edited by Dan Lalor, daniel.lalor@spglobal.com