Nickel to get boost from commodity index re-balancing in January

Nickel is likely to see a surge of buying before and during an annual re-balancing in January of commodity indexes, analysts said, getting a boost after prices tumbled this year on worries about surpluses of the stainless steel material.

Funds that use the S&P GSCI .SPGSCI and Bloomberg .BCOM commodity indexes have to adjust their holdings during a five-day rebalancing, largely based on price moves the previous year.

Traders often position themselves in advance to take advantage of re-balancing, which falls on Jan. 8-12 in 2024.

During that period, other commodities will also be affected, but to a lesser extent than nickel CMNI3, the analysts said.

Soy oil BOc2 and lean hogs LHc1 will also be boosted while WTI crude oil CLc1, lead CMPB3 and sugar SBc1 will be see some selling.

“Nickel will be the most impacted commodity due to its poor performance,” analysts at Societe Generale said in a note.

Nickel on the London Metal Exchange (LME) CMNI3 has slid 44% so far this year and this week prices of the electric vehicle battery material hit $16,710 a metric ton, the weakest since May 2021.

Market moves often occur ahead of the actual re-balancing in January, such as last year when Bloomberg added lead to its commodity index, spurring a rally in November and December.

Moves on nickel are likely to be exaggerated by the cutting of short positions — bets on lower prices.

“The short position on the LME by our estimates is as big as it’s ever been,” said Alastair Munro at broker Marex.

Investors are expected to buy 9,974 nickel contracts worth $1.033 billion, Citi analysts said in a note. SocGen and Marex expect a lower number. The final amount will be determined by the price at the end of December.

LME nickel has seen volumes improve this year, although they are still below the levels before a chaotic price spike in March 2022, which forced the LME to halt nickel trading and cancel trades.

Overall investment in funds based on commodity indexes and commodity exchange traded funds (ETFs) has flagged this year.

Since peaking in the first and second quarters of 2022 at $930 billion, commodities assets under management have deflated 35%, challenging those arguing for a commodity ‘super cycle’ narrative, Citi said.
Source: Reuters (Reporting by Eric Onstad, Editing by Alexandra Hudson)