Nickel prices fell 4.1 percent on the London Metal Exchange on Wednesday after a further rise in stockpiles to a five-month high, dragging other metals lower.
Nickel for delivery in three months closed at $46,200 a tonne, down $2,000. It earlier touched $45,900, its lowest since mid-April. "Nickel is setting the emotional tone in the market at the moment," said Jon Bergtheil, analyst at J.P. Morgan.
Stocks of nickel in LME warehouses rose to 6,834 tonnes, their highest since December 21, 2006 and over double their level in early February. Most of the inflow was to Rotterdam. Prices have hit successive peaks over the past two months, the most recent in early May at $51,800, as suppliers of the metal, used mainly to make stainless steel, have struggled to keep up with robust demand.
Despite the latest fall, nickel prices are still up 42 percent since the start of the year. World stainless steel output was forecast to rise 5.1 percent to a record high of 29.8 million tonnes in 2007, the International Stainless Steel Forum said earlier this week. That compares with growth of over 16 percent in 2006.
In industry news, the world's largest nickel producer Norilsk Nickel increased its bid for Canada's Lionore Mining International Ltd, raising the stakes in its battle with Xstrata Plc. In aluminium, shares of Alcan Inc gained on a report it was talking to BHP Billiton as the Canadian aluminium maker opposes a hostile $28 billion bid by US rival Alcoa Inc. Aluminium was down $34 at $2,821 after gaining some 25 percent since the beginning of 2006.
The world's top primary aluminium producer, United Company RUSAL, said prices were likely to stay high as demand, mainly driven by China, would grow by 3 to 5 percent this year. "We have a strong balance sheet at the moment thanks to the high commodity prices," Artem Volynets, the company's strategy and corporate development director, told the Reuters Global Mining and Steel Summit in London.
After an early attempt to recoup following Tuesday's failed rally, copper prices were hit by nickel's weakness. Copper futures were down 0.8 percent or $56 at $7,205. Prices fell very close to the psychological $7,000 level last week before recovering.
In New York, copper futures settled mixed on Wednesday, with the front end of the curve drifting to a weaker close. Copper for July delivery closed down 0.20 cent to $3.3005 a lb on the New York Mercantile Exchange's COMEX division, after dealing in a session range between $3.2550 and $3.3325. A glut of metal in key consumer China caused concern.
"Rising exchange stocks in China are a strong indication that the copper price has run too far and that a return to a range of $6,000-7,000 would be justified by consumer appetite," John Reade, analyst with UBS investment bank, said in a report. "Without a surge of investment of speculative buying we do not see copper surging higher this year."
A sluggish housing market in the United States has also caused concern and investors would watch US housing reports on Thursday. US Treasury Secretary Henry Paulson said on Tuesday the US correction in the housing industry was "largely past." "We are not so sure we agree with him," analyst Edward Meir at Man Financial said in a report.
Other metals weakened with zinc down $60 at $3,650 and tin fell to $13,800/13,825 from $13,950/14,000. Lead shed $20 at $2,130, having hit a new record on Tuesday at $2,216.
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