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Price Surge Trumped By Uncertainty

Base metals basked in a post-election glow in the immediate aftermath of the U.S. Presidential election result. The LMEX index gained 6% by the November 10 close, compared with November 7, on the surprise news that Donald Trump was to be the next President of the United States. However, over-exuberance got the better of metals markets, including nickel. The relative strength index reached an overbought 74.8 on November 11, and LME three-month prices corrected sharply downwards from an intraday high of US$12,145/t to close at US$11,210/t on the day.

SHFE prices surged more strongly from RMB85,890/t on November 7, reaching a high of RMB99,800/t on November 14 (+16%), before retreating to close at RMB91,570/t on November 15.

Nickel prices remain around US$30/tonne higher at the time of writing than before Trump’s victory. Over the coming weeks, the market is likely to take a "wait-and-see" approach as the President-elect’s plans for infrastructure spending become clearer. In the Republican candidate’s election manifesto, he promised a massive fiscal stimulus, which would include up to US$500 billion of infrastructure spending.

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As such, the fervent post-Trump victory nickel rally is built on shifting sands. Nonetheless, there remain other reasons to be sanguine over nickel prices. Stronger-than-anticipated stainless steel production growth in China, up 4.1% year-on-year over the first half of 2016, and the contraction of China’s nickel pig iron industry, output down 30% since its 2013 peak, have been important factors in tightening the global nickel market this year.

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Nov 17, 2016
Research