Nickel and other base metals slumped on Friday as investors shunned risky assets amid tensions on the Korean peninsula and secured profits after a recent rally. US President Donald Trump issued a new threat to North Korea, saying American weapons were "locked and loaded" as Pyongyang accused him of driving the Korean Peninsula to the brink of nuclear war.
"I think there's a combination of heightened geopolitical risk today and probably a bit of profit taking," said Caroline Bain, chief commodities economist at Capital Economics in London. "Metals have had a good run and it's been underpinned by recent good activity data out from China, but I think it's gone a bit too far."
The industrial metals complex probably needs a correction in the region of 10 percent to get back into balance, Bain added. The London Metal Exchange index of six base metals had climbed 13 percent in the past month up to Thursday's close. LME benchmark nickel was the biggest loser on the exchange, closing the day down 3 percent at $10,660 a tonne after gaining nearly a quarter over the past month, touching a four-month peak on Thursday.
"We're probably not going to see a big drop in Philippine nickel output, we've got Indonesian exports resuming now and still high stocks of refined metal," Bain said. "The market is tightening, but it's still very comfortably supplied, so it's hard to get too positive on nickel."
LME metals were also pressured after Chinese steel and iron ore futures slid as the Shanghai Futures Exchange urged investors to trade "rationally" and keep the market stable following a speculative rally. Nickel and zinc were hit hardest since the former is mostly used in stainless steel while the latter's biggest demand is for galvanising steel.
Three-month LME zinc shed 1.4 percent to finish at $2,896.50, but closed the week with a gain of 3 percent, the largest weekly rise since late June. Lead lost 1.7 percent to $2,327. Trading data in aluminium show some investors are bracing for a correction from the recent rally, with demand weak and production cuts in China to reduce pollution likely to be not as big as expected.
LME aluminium bucked the weaker trend. It ticked 0.3 percent firmer to finish the day at $2,042, ending with a weekly gain of nearly 7 percent, the biggest weekly rise since September 2012. LME copper slipped 0.2 percent to close at $6,411 amid indications that physical demand in China was faltering.
"After spending two weeks at levels not seen since November, Yangshan premiums have come under pressure, dipping today for the second time this week," Alastair Munro at broker Marex Spectron said in a note. LME tin dipped 0.1 percent to end at $20,305.
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