FUNDAMENTAL &

TECHNICAL ANALYSIS OF
NICKEL
Made by:

ANISHA AGARWAL (86)

SANAL GUPTA (106)

RUSHABH NISAR (128)

Welingkar Institute of Management Development and Research

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ACKNOWLEDGEMENT
First and foremost, we express our deep sense of gratitude towards WE
School, Mumbai for providing us the opportunity and the leeway to realize what we
were afraid might be untenable, to reach out for what we were unsure was
untouchable and to fly when we were afraid we might be bounded by invisible wall,
both around our self and our mind.

We would like to express our gratitude to our Professor Mr.Anil Mendhi for
his unflagging support throughout the tenure of our project.

We would also like to thank Mr.Shaivalya Thakker for his encouraging

attitude.

Last but not the least we must acknowledge the contribution of Mr.Kanu
Doshi for his fortitude and vision.

And lastly, we would also like to thank all WE School employees who helped
us directly or indirectly in our project.
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INDEX
ACKNOWLEDGEMENT.....................................................................................................................................................1
INDEX..............................................................................................................................................................................2
1.1 INTRODUCTION...................................................................................................................................................3
1.2 APPLICATION OF NICKEL......................................................................................................................................4
1.3A PRODUCTION PROCESS OF NICKEL......................................................................................................................6
1.3B PICTORAL REPRESENTATION OF THE PROCESS...................................................................................................7
1.4 EXECUTIVE SUMMARY.........................................................................................................................................8
1.5 INDIAN SCENARIO.............................................................................................................................................10
Factors influencing the Market:................................................................................................................................10
Important Global Exchanges.....................................................................................................................................10
1.6 CONTRACT SPECIFICATION OF NICKEL...............................................................................................................12
2.1 FUNDAMENTAL ANALYSIS.................................................................................................................................14
END-USE TRENDS......................................................................................................................................................14
ECONOMIC TRENDS..................................................................................................................................................14
THE PROSPECTS FOR STAINLESS STEEL......................................................................................................................15
SUBSTITUTION EFFECTS (THE AUSTENITIC RATIO)....................................................................................................17
SUBSTITUTION LIMITS NICKEL DEMAND GROWTH...................................................................................................17
CONSUMPTION OUTLOOK.........................................................................................................................................18
3.1 TECHNICAL ANALYSIS........................................................................................................................................20
Candle Stick Chart (MCX – past 2 years)....................................................................................................................20
Daily Moving Average Chart (50 days, 200 days).......................................................................................................21
Candle Stick Chart Along With Volumes....................................................................................................................22
MACD & RSI CHARTS.................................................................................................................................................23
FINAL DECISION.............................................................................................................................................................24
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1.1 INTRODUCTION
In the mid-18th century, primary nickel was first isolated as a separate metal. Prior to this, it was found in
copper mines and thought to be an unsmeltable copper ore. Primary nickel can resist corrosion and
maintains its physical and mechanical properties even when placed under extreme temperatures. When
these properties were recognised, the development of primary nickel began. It was found that by
combining primary nickel with steel, even in small quantities, the durability and strength of the steel
increased significantly as did its resistance to corrosion. This partnership has remained and the production
of stainless steel is now the single largest consumer of primary nickel today. This highly useful metal is also
used in the production of many different metal alloys for specialised use.

Nickel is a shiny metal, silvery white in colour that belongs to the iron group and is used in various fields
like engineering, electrical and electronic, automobile etc. It is scientifically symbolized with the help of ‘Ni’
symbol and has 28 as its atomic number in the periodic table. Nickel is a metal that is highly ductile and
malleable and also has features like extremely resistant to corrosion, low conductivity of heat and
electricity, tough and hard, ferromagnetic etc. Due to these features, the metal is primarily an industrial
metal and is required as an important ingredient in over 3000 products.
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WORLD NICKEL PRODUCTION

Oceania Africa
11% 4% Europe
34%

America
22%

Asia
29%
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INDUSTRY CONSUMPTION

Chemicals
Electroplating 5%
8%

Other Alloys
22%

Stainless Steel
65%

Source: Standard CIB Global Research www.standardbank.co.za

1.2 APPLICATION OF NICKEL

Nickel is the main alloying metal used in producing certain types of stainless steel. The strength and
durability of products built with stainless steel is vastly superior to similar products built with non stainless
steel. Among base metals, nickel is the most volatile owing to its strong demand and tight supply. Nickel
demand is derived based on the growth of different industrial sectors and thus exhibits high volatility.

Nickel’s primary use (65%) is in the manufacturing of stainless steel, 20% in other steel and nonferrous
alloys, 9% in electroplating, and about 6% used in oil’s and nickel chemicals. Demand for stainless steel
took off in the mid-1980, especially in chemical engineering, paper and food processing industries, where
stainless steel high melting point, high resistance to corrosion and oxidation, and strength, made it
invaluable as it could withstand heat, chemical, acid, and pressure that these industrial processes require.
Stainless steel is also used in construction and household items such as kitchen sinks, pots, pans, utensils
and work surfaces. Nickel is also used to produce super-alloys which are extensively in the aerospace
industries. Mobile phones, computers, digital cameras etc., all need small, lightweight, high capacity power
surfaces. Nickel Cadmium and other nickel alloys have been used to produce some of these batteries.
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MAJOR MINE PRODUCTION OF NICKEL

300000
250000
200000
150000
100000
50000
0
ss
ia
pa
n lia da wa
y
in
a d ia
u Ja ts ra ana r Ch n lan don
R u C No Fi le
A Ca
w
Ne

World’s total mine production hovers around 1.4 million tons. Russia took over Canada’s lead in 1970s and
till now Russia has maintained it. The top 5 mine producing countries, mentioned in the list, account for
over 65% of the total production. The total mine reserves present are believed to sustain for another 100
more years from now.

MAJOR NICKEL METAL PRODUCING COUNTRIES

300000
250000
200000
150000
100000
50000
0
ia n a a y a d ia
ss pa r ali ad wa in lan on
Ru Ja us
t
Ca
n r Ch n d
No Fi le
A Ca
w
Ne

Russia again leads the list of countries indulging in the plant production of the metal. The production shot
up all around the world in the 1990s due to the expansion of the plant capacities of the major existing
producers of nickel. Also, a major portion of the total demand for the metal i.e. around 1/4th of the total
demand is satisfied by the production in the nickel-recycling sector. Most of the scrap consists of stainless
steel scrap that is acquired from the all parts of the globe.
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1.3A PRODUCTION PROCESS OF NICKEL

After mining from nearby open pits, ore is dumped on the run of mine (ROM) pad, where it is sorted
according to grade and blended to ensure consistent feed to the feed preparation circuit.

The pressure acid leach circuit consists of four giant titanium lined autoclaves, each the size of a small
submarine.

The nickel and cobalt is leached out of the ore slurry, grading approximately 1.35% nickel and 0.09% cobalt,
and into solution, by raising the pressure up to 44 atmospheres and spraying it with highly concentrated
sulphuric acid at a temperature of 255 degrees Celsius. This generates substantial quantities of heat and
acid which are later recycled throughout the plant.

The ore is leached, with the valuable nickel and cobalt in a soluble form which must be separated from the
residue waste material. This solution is then "washed" to remove waste materials and is recycled back into
the slurry ore preparation before eventually being pumped out to the tailings dam as neutralised and inert
waste.

Leached ore solution now passes into the neutralisation circuit where calcrete is added to neutralise the
acid. The solution is then passed into the mixed sulphides precipitation circuit, where hydrogen sulphide
gas is added to convert the solution into a mixed nickel cobalt sulphide.

The mixed nickel cobalt sulphide enters another autoclave where pure oxygen converts the solution from a
mixed sulphide into a metal sulphate. At this point the nickel and cobalt molecules remain attached to
each other. Impurities such as iron and zinc are removed, before the cobalt is separated using an organic
reagent.

The nickel sulphate solution then enters five parallel autoclaves, known as the hydrogen reduction circuit,
where the hydrogen is added, liquids are separated and the remaining solids are converted into a dry
powder of pure nickel.

The powder is formed into a pillow-shaped briquette, sintered in a furnace and then packaged for
transportation. The entire process from beginning to end takes approximately 14 days.
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1.3B PICTORAL REPRESENTATION OF THE PROCESS

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1.4 EXECUTIVE SUMMARY

The nickel market is emerging from a bull market where it can be argued that ‘perfect storm’ conditions
prevailed. These were:

A lack of investment in nickel production capacity earlier this decade due to low prices.

The failure of the first generation of the Pressure Acid Leach Projects to fulfil potential and the delay of
Voisey’s Bay contributed to the production shortfall.

There was a massive increase in production costs associated with labour, power and other raw material
shortages.

There was a huge surge in capital costs associated with the next generation of nickel projects.

Nickel costs also rose with emergence of the Chinese nickel pig iron sector.

Demand growth accelerated, reflecting the beginning of a sustained period of metals-intensive growth in
the emerging economies, particularly China.

After the dot.com collapse most of the OECD economies began to enjoy a sustained period of economic
expansion.

Nickel prices were supported by a prolonged downturn in the value of the dollar.

Nickel prices were boosted by the increasing acceptance of commodities as an asset class and the massive
expansion of hedge funds.

These factors combined to send nickel to new highs in excess of $50,000/tonne. There are a number of
factors that will influence nickel long-term pricing over the course of the cycle. First, long-term prices need
to be defined. From the mining industry’s perspective, the long-term price is often the price that is used for
project evaluation. The mining industry is slow to adjust these rates (partly due to the experience of the
prolonged period of low prices prior to the current bull market) and partly as they are based on production
costs.

It is believed that the long-term price is a realistic average price over the course of the cycle taking into
accounts both peaks and troughs. A ten-year price average can also be considered as a reasonable good
proxy for long-term prices. However, it should be noted that the exceptionally high base skews the average
price over the 2007-2017 period.
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A number of different methods can be used to arrive at an estimate of the long-term average price. Here
we have used a mixture of:

Market balance derived price projections – this method takes into consideration likely demand conditions
and importantly, known changes to supply. It also utilises the historical inverse relationship between stocks
and prices to determine the price outlook. However beyond a certain period (five years) this approach
becomes less relevant as more and more assumptions concerning both the supply and demand have to be
made. Also, the relationship between inventories and prices can alter over the course of the cycle.

The incentive price is linked to the production cost of the industry. The nickel production cost curve has
shifted considerably in recent years.
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1.5 INDIAN SCENARIO

Nickel market in India is totally dependent on import. India imports around 30,000 tonnes of nickel. With a
growth in the stainless steel sector, the nickel import demand is expected to increase in the coming years.
Steel scrap has emerged as a good substitute for the primary metal. There is a 15% import duty on nickel in
India.

Factors influencing the Market:

 Above ground supply from scrap

 New mines discovery
 Nickel demand is a derived demand
 Growth in consumption of stainless steel

Important Global Exchanges

Exchange Product Lot Size IST

17:20 - 22:30 (Winters)*
LME Nickel 6MT
16:20 - 21:30 (Summers)*
10:00 - 23:55 (Winters)
MCX Nickel 250kg
10:00 - 23:30 (Summers)
* LME Ring and Kerb Timing Only.
(Start Time: Ring session, End Time: Kerb Trading )
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1.6 CONTRACT SPECIFICATION OF NICKEL

Symbol NICKEL
Description NICKEL MMMYY
Trading Period Monday to Saturday
Monday to Friday: 10:00 - 23.55hrs (Winter)
Trading Session Monday to Friday: 10:00 - 23:30hrs (Summers)
Saturday: 10:00 - 14:00hrs
Contract Months Monthly Contracts
Expiry Date Last day of the contract
Trading Unit 250kg
Quotation/Base value `/per kg
Tick Size 10 paisa
Max. Order Size 24MT
Daily Price Limit 6%
Initial Margin VaR based

In case of additional volatility, a special margin of such

percentage (as deemed fit) will be imposed immediately
Special Margin on both buy-side and sell-side in respect of all O/S
position, which will remain in force for the next two days.
After which, the special margin will be relaxed.

For individual clients: 200MT

For a member collectively for all clients: Not more than the
Max. Allowable Open Position
25% of the market wide open positions in a contract at any
point of time
Delivery Logic Both options
Delivery Centre Within 20 km outside Mumbai octroi limits
Delivery Unit 3MT with tolerance limit of +/- 1% (30 kg)
DDR is calculated on the last day of the contract expiry by
taking average of the LME official cash closing prices (i.e.
Due Date Rate(DDR) Calculation mid-value of bid and ask) of nickel, and it would be
multiplied by rupee-US $ rate, as notified by RBI on that
particular day.
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1.7 CONTRACTS AVAILABLE FOR NICKEL

January Contract 1st October of earlier year to 31st January of the contract year

February Contract 1st November of the earlier year to 28th February of the contract year

March Contract 1st December of the earlier year to the 31st March of the contract year

April Contract 1st January to the 30th April of the contract year

May Contract 1st February to the 31st May of the contract year

June Contract 1st March to the 30th June of the contract year

July Contract 1st April to the 31st July of the contract year

August Contract 1st May to the 31st August of the contract year

September
1st June to the 30th September of the contract year
Contract

October Contract 1st July to the 31st October of the contract year

November Contract 1st August to the 30th November of the contract year

December Contract 1st September to the 30th December of the contract year
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2.1 FUNDAMENTAL ANALYSIS

END-USE TRENDS

The end-use data confirms the industry’s reliance on the stainless steel sector to underpin demand growth.
Stainless steel has gained markets in many applications due to the greater implementation of life cycle
costing. Its superior resistance to general corrosion, as well as its good pitting, crevice and stress corrosion
has helped underpin growth in aggressive environments in certain marine applications and in the oil, gas
power and chemical industries; although it’s largest market is now consumer durables. Stainless now
accounts for just over two-thirds of nickel consumption.

Alloy steels find their way into a wide range of industrial applications - the largest market is the automotive
industry where they are primarily used in engine components. Low levels of alloy steel output and
developments in steel-making technology have reduced unit consumption of nickel. Recently its share of
the market has stabilised at around 5%, having been 10% at the beginning of the last decade.

Non-ferrous alloys cover a wide variety of nickel alloys that contain little or no iron and display either
excellent heat or corrosion resistance, or a mixture of both. Nevertheless miniaturisation and competition
from other materials has seen its share of nickel consumption dip below 10% compared to just over 15% in
1990.

Nickel’s use in castings (usually stainless steel) has also come under pressure from better casting
techniques and competition from lighter weight materials. Its share of the market is now around 3%.

Electroplating has been a major growth market, especially in Asia, which has been driven by new
applications in the IT and electronics sectors. Its share of nickel consumption now stands at 7%.

ECONOMIC TRENDS

There will be a cyclical recovery in economic growth in 2009 and that the construction sector will begin to
rebound, albeit from a low base. However, growth rates in the mature economies will remain lower than in
previous cycles. The erosion of the manufacturing base in these regions will continue to restrict nickel
consumption growth going forward.

A number of factors suggest that economic growth in the BRICS and the ASEAN nations should continue to
outpace that in the mature economies and we expect that developments within these countries will be the
driver behind global nickel demand growth.
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Faster rates of underlying economic expansion within these countries, particularly in China, Russia and
Vietnam than in the mature economies. Growth in India will be held back slightly by poor infrastructure.

Although these countries will not be able to totally decouple from economic events in the US and other
OECD economies, they have sufficient internal momentum to maintain relatively high growth rates over
the forecast period.

Data relating to per capita consumption and GDP per capita points to the potential for metals intensive
growth to continue in these countries over the forecast period i.e. nickel demand growth will exceed that
of an economic aggregate such as GDP.

45
40
35
30
25
20
15
10
5
0
USA Germany Italy Japan South Korea China India

THE PROSPECTS FOR STAINLESS STEEL

The stainless steel sector will continue to drive nickel demand. The tables below highlight regional trends
in stainless steel consumption and production over the period 1996-2006.

Predictably, total growth rates for stainless consumption and production are roughly in line. The regional
demand and supply numbers show different trends, which essentially highlight investment in new capacity
and, in particular, shifting trading patterns.
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STAINLESS

Average Annual Consumption Growth

Countries 1996-2001 2001-2006 1996-2006

Europe 5.5% 3.9% 4.7%
Japan -0.4% 1.0% 0.3%
USA -1.6% 3.8% 1.1%
Brazil 8.2% 3.5% 5.8%
Russia 10.0% 14.4% 12.1%
India 7.0% 13.4% 10.1%
China 19.4% 22.7% 21.0%
Total BRICs 14.6% 19.5% 17.0%
Total World 4.4% 8.8% 6.6%

On a global level, two key features stand out. First, the average annual rate of consumption growth over
the ten-year period of 6.6% was much higher than for most industrial commodities. Second, the rate of
growth in 2001-2006 at 8.8% per annum was twice that in the period 1996-2001 of 4.4%.

The BRICs have provided much of the growth with the average annual growth rate increasing by 17% per
annum between 1996 and 2006. Consumption in Europe was relatively healthy, reflecting the region’s
large export-oriented capital goods sector and a significant white goods industry. When the full year
stainless data becomes available it will show the emerging economies further increasing their share as off-
take slipped in Europe, Japan and the US, due to a combination of de-stocking and economic weakness.

What ultimately sets the background for nickel demand is the level of stainless steel production and here
the trends essentially follow investment in new melting capacity. Here the dominance of the BRICs, and in
particular China, is even greater. Stainless production in the BRICs has risen at an average annual rate of
20.3% over the last ten years (and 31% per annum over the last five years). This has come about despite
flat or declining production in Russia. The country used to be a large producer of stainless prior to the
collapse of communism, to supply the military industrial complex. Russian steel mills are now starting to
invest in stainless facilities that should filter through to quite sharp output (and hence nickel consumption)
growth towards the end of the forecast period. The vast majority of the new melting capacity in the
pipeline will come on-stream in China in the next few years. In the next decade we expect a surge in
capacity in Russia.
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SUBSTITUTION EFFECTS (THE AUSTENITIC RATIO)

The other major determinant of nickel demand is the austenitic ratio i.e. the split between nickel and non-
nickel (ferritic grades). The austenitic ratio has been falling in recent years, which means that the average
annual growth of nickel consumption tends to be below the average rate for stainless steel production. Up
until about 2003, the austenitic ratio had been reasonably stable at around 75%.

STAINLESS

Average Annual Production Growth

Countries 1996-2001 2001-2006 1996-2006

Europe 4.3% 3.9% 4.1%
Japan -0.1% 1.1% 0.5%
USA -0.6% 6.3% 2.8%
Brazil 11.6% 6.6% 9.1%
Russia -4.1% 0.0% -2.1%
India 4.8% 19.5% 11.9%
China 18.0% 45.2% 30.9%
Total BRICs 10.4% 31.0% 20.3%
Total World 4.0% 8.4% 6.2%

However, this ratio came under attack from a number of sources. There was a high profile shift in China
towards the 200 series which have 1-5% nickel content while many producers, particularly in Japan and
Western Europe, have raised their production of ferritic grades that contain no nickel. The bottom line is
that the austenitic ratio has fallen by over 10 points and is now around 62-64%. The recent surge in ferro-
chrome has stabilised or slightly reversed this decline. However it is difficult to imagine circumstances
where the austenitic ratio returns to its earlier levels.

SUBSTITUTION LIMITS NICKEL DEMAND GROWTH

Reflecting the trends highlighted above, nickel has a relatively high consumption growth rate compared to
most of the other base metals, yet it lags well behind the rate of stainless production growth. As can be
seen from the table, average nickel demand and stainless growth were roughly similar between 1996 and
2001 at around 4%, a time when the austenitic ratio was stable, while in the next five-year period, the rate
of nickel demand was half that of stainless as the austenitic ratio collapsed. Data for 2007 shows more
extreme changes as high prices early in the year accelerated the decline in the production of nickel-
containing grades.
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Nickel Average Consumption Growth

Countries 1996-2001 2001-2006 1996-2006 1996-2007

Europe 6.20% -0.20% 2.90% 1.9%
Japan -2.69% 2.30% -0.30% -0.6%
USA 1.60% 2.30% 1.90% 0.8%
Brazil 6.50% 3.30% 4.90% 5.2%
Russia -2.70% -1.20% -1.90% 2.0%
India 6.10% -6.30% -0.30% 2.8%
China 12.40% 23.70% 17.90% 19.5%
Total BRICs 6.90% 14.50% 10.70% 12.8%
Total World 4.40% 4.20% 4.30% 4.1%

The nickel industry has been even more reliant on China to drive consumption growth in recent years than
the other base metals. Firstly, the country has seen a massive surge in stainless production, and secondly,
consumption in the other BRICs has been limited, or in some cases negative. This reflects that stainless
steel production in Brazil has flattened out after strong growth up to around 2003 and that Russian
stainless output has been declining. Although Indian stainless output has been rising it is primarily focused
on low nickel containing grades.

CONSUMPTION OUTLOOK

In deriving the consumption projections following factors need to be taken inconsideration:

 Historical regional consumption patterns

 Historical end use patterns
 Long-term growth potential indicators such as per capita consumption.
 Substitution pressures
 Miniaturisation i.e. where less metal is used in an exiting operation
 Economic environment

Forecasts say that global nickel consumption will increase over the 2007-2017 period at an average annual
rate of 5.3% per annum. This is slightly faster than over the previous ten-year period as strong growth is
expected to continue from the emerging economies (particularly the BRICs), and inevitably the base for
this growth gets larger every year. Rapid expansion will also begin to “kick in” from Russia and India which,
as noted above, have made little contribution in recent years.
 P a g e | 20

The rate of demand growth in the first five years of the forecast period at 5.6% per annum will be faster
than the next five years (2012-17) on the assumption that the metals-intensive period of growth will begin
to ease slightly. Generally the decline in the mature economies should continue. However, given the highly

developed market for stainless in Western Europe and the potential for growth in Eastern Europe, we have
mildly positive growth over the forecast period. By 2017, global nickel consumption should be 2.475m
tonnes compared to around 1.5m tonnes in 2007.

It should be remembered that nickel is inherently one of the most volatile base metals in terms of demand.
Our projections about global demand for individual years are given in our supply-demand balance analysis.
Global nickel consumption rate is growing by an average of 3.1% per annum.

Nickel Consumption Forecasts

2007-2012 ('000 tonnes) Average Annual Growth

Countries 2007 2012 2017 2007-2012 2012-2017 2007-2017
Europe 447 470 500 1.0% 1.2% 1.1%
Japan 175 170 165 -0.6% -0.6% -0.6%
USA 130 125 120 -0.8% -0.8% -0.8%
Brazil 27 45 65 10.8% 7.6% 9.2%
Russia 40 55 100 6.6% 12.7% 9.6%
India 25 40 100 9.9% 20.1% 14.9%
China 330 550 750 10.8% 6.4% 8.6%
Total BRICs 422 680 1015 10.0% 8.3% 9.2%
Total World 1481 1945 2475 5.6% 4.9% 5.3%

As per the Fundamental Analysis, nickel is a good buy. The reason being with the increase in demand of
nickel continuously over the years and the mines being explored, this has a very good prospect in the
future.
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3.1 TECHNICAL ANALYSIS

Candle Stick Chart (MCX – past 2 years)

REMARKS

 It is seen from past 2 year as a whole the Nickel is in Upward trend with minor down falls
 The prices are moving within the trend line drawn. So from the price pattern in the past with in the
trend line we assume upward trend.
 Even the in past 2 months Green candle dominates Red candle, so even looking candle stick in near
short term upward trend is depicted.
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Daily Moving Average Chart (50 days, 200 days)

INDICATIONS: 50 DAYS; 200DAYS

REMARKS

 As the 50 days DMA & 200 days DMA are near (touching) each other. & also the 50 days DMA is not
able to sustain below 200 days DMA in past week only it has crossed over 200 days DMA.
 Also taking into consideration the volumes & Green candle stick a upside is seen in the prices of
Nickel in near future.
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Candle Stick Chart Along With Volumes

REMARKS

 In past 3-4 months with the upward trend & Green candle the Volumes has increased to a great
extent.
 As the price of Nickel is increasing with Volumes an uptrend is expected as well.
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MACD & RSI CHARTS

Remarks

 RSI is in middle range. It doesn’t reflect the clear buy or sell decision. So RSI does not depict a clear
Buy or Sell decision.
 MACD shows Bullish trend in Nickel

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FINAL DECISION
Tools Used Decision
Date 17th Sep,2010
Commodity/Scrip Nickel
Current Price ` 1070
Candle Stick Buy
Volumes Buy
Price Patterns Buy
Moving Averages Buy
MACD No clear decision
RSI No clear decision
Support Level ` 960
Resistance Level ` 1370
Final Decision Buy
Stop Loss ` 960
Target ` 1370
Risk to Reward Ratio 110/300= 0.367

As per the Technical Analysis Nickel can be bought. The one who is holding buy position should also sell in
future at 1370 with a stop-loss of 960.