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Nickel price collapse reversing as Biden plans to further incentivise EV demand

Nickel was hit hard last month, yet the outlook for demand and Biden plans to further incentivise electric vehicle demand points towards a potential rebound from here.

Nickel capitulation built on potential supply shift

Nickel saw sharp declines at the end of February, with traders reacting to the news that Chinese steelmaker Tsingshan it had agreed to supply 100,000 tonnes of nickel matte to two battery manufacturers. Nickel typically comes in two-grades, and this was a case of a company providing the lower grade material (class 2) for a market that typically requires the higher-grade product (class 1).

The growth in demand from electric vehicles led to calls from Elon Musk for producers to 'please mine more nickel'. The Tesla CEO stated that owing to the scarcity and cost, it provided their 'our biggest concern for scaling lithium-ion cell production'.

However, the recent Tsingshan deal does raise questions over whether the class 2 material that had typically only really been used to make steel could be treated in a manner that could ultimately provide a material worthy of the electric vehicle (EV) demand.

Nevertheless, while this does raise the possibility that the scarcity issue could be resolved through the cross-utilisation of nickel types, the process required is highly energy intensive, and costly. With EVs typically built on the premise of energy efficiency, it is questionable whether this secondary source of material will prove a major roadblock to class 1 nickel demand.

Biden hopes to lift EV demand further

Having already found cross-party agreement on his $1.9 trillion pandemic-relief package, US President Joe Biden has now turned towards a potential $2.25 trillion stimulus plan. Within that package, Biden has proposed a $174 billion allocation towards boosting electric vehicle usage.

Crucially, $100 billion of that is set aside for new consumer rebates in a bid to incentivise the transition from carbon to electric. That could mean a possible end to the 200,000 threshold beyond which a manufacturer would see the subsidies offered to their prospective customer diminish.

What we are looking at is a historic shift towards EV, and that should provide further upside for nickel over time. With that in mind, the latest pullback could provide a great buying opportunity for the resource.

Nickel pullback brings potential buying opportunity

The pullback seen a month ago took the price of nickel back into the 76.4% Fibonacci retracement region. Following a three-week consolidation period, there is a good chance we have now broken into a more bullish phase.

Interestingly, the stochastic is on the cusp of a rise up through the 20 threshold, which has provided three very good buy signals and one fakeout over the past two years. With that in mind, this looks like a good place for the bulls to come back into play once more.

From an intraday perspective, the break through $16,827 resistance signals an end to the recent consolidation phase. While we have seen price pause around that resistance level, there is a good chance we will soon see another leg higher as bulls feel more confident of a upward turnaround. This bullish view holds unless price breaks back below the $15,845 swing low.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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