MUMBAI: Nickel rallied strongly this week on expectation of greater demand from steel companies, for which it forms a key raw material. The industrial metal gaining weightage in a popular international commodity index basket also triggered enhanced investor interest. There was also technical buying coming at low levels, said the analysts.

In spite of the gloomy outlook for industrial metals, analysts are expecting a good upward move in nickel on the back of the stimulus packages being announced by various governments to boost demand.

Nickel moved up by approximately 34% on LME closing at $12900 per tonne against the previous week close at $9600. On MCX the January contract moved up by 31% closing at Rs 631 per kg against the previous week’s close at Rs 482.

Once every year commodity index compilers recalculate the weightings of the individual commodity in their indexes. “Nickel and copper will be figuring in the commodity index basket re weighting which is driving up the prices,” says Angel Commodities head research Amar Singh. He added that nickel price would also be determined by the performance of stainless steel. For the coming week he feels on LME first resistance will be seen at $13450 per tonne level and if this is reached price might touch $14300 level. “For MCX the January contract will have a resistance at Rs 690 level and support at Rs 520 level,” he adds.

Kunal Shah, research analyst from Nirmal Bang Commodities said that nickel is going to be attractive as the prices are still below cost of production. “The cost of production of major miners in Australia is $7-7.5 per pound while this is currently in the range $4.5- $5.6 per pound. So there is still a potential for upside,” he adds.

There was also technical buying coming in for nickel as its prices have fallen by over 80% since its high levels of $52000 per tonne in May 2007 to low levels of $8750 in last week of October 2008. Nickel along with other metals were also supported on the domestic MCX with RBI cutting key lending rates to increase resources for lending.

Even the Indian government announced a stimulus package to bring more funds into the country. All these measure to support economic growth supported the base metals as traders anticipated that demand will increase for base metals.
Meanwhile, nickel inventories on LME at 78,390 tonnes, are still at a highest level in nearly 13 years, reflecting no change in gloomy outlook for the industrial commodities with a global recession in the backdrop.