Nickel prices fell more than 4 percent on Wednesday as some investors saw the market's Indonesian supply problem as fully priced in, given the metal is trading up nearly 50 percent in the year to date. Three-month nickel on the London Metal Exchange (LME) ended down 4.5 percent at $20,050 a tonne, after rising in the last six trading sessions. It hit its highest level since February 2012 at $21,625 a tonne on Tuesday.
Since Indonesia banned the export of unprocessed nickel ores in January, prices of ore and of refined nickel have soared. In China, traders have held on to their stocks, while producers there and in Japan scramble for supplies.
Chinese producers of nickel pig iron (NPI), a cheaper alternative to refined nickel used in stainless steel, are running out of options for their raw material supply, while stainless steel producers are buying up refined nickel instead. Concerns about a shortage have helped nickel rise 50 percent so far this year, but analysts said the rally could be losing some momentum.
"We believe that the upside (for nickel) is capped by the resistance of $22,000 but having said that, a pullback is due for the metal and the near term support could be near the $18,950 level," said Naeem Aslam, chief market analyst at Ava Trade. Mining group Eramet said on Wednesday it expects the nickel price rally will boost its second-quarter profit, but remained cautious over its results while awaiting the outcome of elections in the Indonesia. By contrast, global miner BHP Billiton said it is in talks to sell its Australian nickel business, in line with its aim of simplifying the company.
And troubled Finnish nickel miner Talvivaara plans to delist its shares from the London Stock Exchange, leaving its only listing in Helsinki, in a bid to cut costs. In the copper market, benchmark prices for the metal used in power and construction ended up 1.1 percent to $6,920 a tonne, having earlier touched their highest since early March at $6,940 a tonne. The LS-Nikko copper smelter in South Korea is expected to halt production for at least two weeks after an explosion on Tuesday caused some injuries, sources with knowledge of the matter said. One of the sources said at least 250,000 tonnes of annual capacity at the smelter had shut.
In the United States meanwhile, unexpectedly higher producer price inflation data for April, the largest increase in 1-1/2 years, caused short-lived dollar buying that limited copper's gain. The world's no. 2 economy might miss its economic growth target for the first time in 15 years as data points to a sharper-than-expected loss of momentum and top leaders are talking about a "new normal" of slower growth.
China consumes 40 percent of global refined copper. "The copper price has got ahead of itself," said Helen Lau, a senior mining analyst at UOB-Kay Hian Securities, noting signs of weakness in China's economy. In other metals, aluminium ended up 1.54 percent at $1,808.50 a tonne, zinc climbed 1.91 percent to end at $2,102.50 a tonne, after earlier hitting its highest since early March. Lead rose 1.7 percent to end at $2,158 a tonne while tin closed up 0.28 percent at $23,400.
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