Nickel prices recouped some losses on Thursday, paring an earlier 10 percent fall as investors seized the opportunity to jump back into a market, where there are expectations of future gains as supply shortages become more severe. Nickel prices reached their highest in more than two years on Tuesday with gains of more than 50 percent this year in response to an export ban by top ore supplier Indonesia in January.
But investors became wary that prices had raced ahead of the underlying fundamentals, and selling snowballed as a wave of option holders also liquidated hedge positions. Three-month nickel on the London Metal Exchange (LME) fell as low as $18,090 a tonne at one point, a 9.8 percent fall from Wednesday's prices and its lowest level in two weeks.
After a partial recovery, prices closed down 6.5 percent at $18,750 a tonne, trimming the year's gains to 35 percent. Nickel is expected to bounce back as long as Indonesia keeps squeezing supply and stainless steel producers can absorb higher prices. "Talking to lots of investors and speculators, if they haven't already bought into the nickel story, any correction was their opportunity to do so. There won't be any dearth of buyers," analyst Robin Bhar at Societe Generale said.
"There is a core bullish argument because of Indonesia, but there's also lots of froth. You have to look at how much of the recent price rise has been genuinely based on the fundamentals and how much is pure speculative activity." Stop-loss sales were triggered around $19,000 and around$18,500-19,000, traders said. Nickel prices have lost around 9 percent of their value in the last two trading days.
"This...illustrates the extent to which speculation was apparently responsible for driving up the nickel price of late," Commerzbank analysts said in a note.a "The price slump is doubtless attributable to precisely such investors choosing to take profits, and the correction process could well continue for the time being." Other metals eased, partly due to pressure from a weaker euro, which makes commodities priced in dollars more expensive for buyers in Europe. The euro fell to a six-week low against the dollar on expectations the European Central Bank is poised to ease policy at next month's meeting.
Copper fell after news that the impact of a smelter explosion in Korea would not be as severe as feared. LS-Nikko Copper's smelter will delay maintenance on its No 1 unit in order to maintain output after another unit was shut down by a steam explosion earlier this week, a Japanese shareholder of the South Korean company told Reuters.
LME benchmark three-month copper closed 0.6 percent lower at $6,880 a tonne after a 1.1 percent rise in the previous session to the highest level in more than two months. Losses were moderated in some metals after China said it was increasing support for the wobbly trade sector with new measures that include giving more tax breaks, credit insurance and currency hedging options to exporters. In other metals, zinc ended 2.1 percent lower at $2,059, lead closed down 1.2 percent at $2,132, tin closed 0.2 percent lower at $23,350 and aluminium ended 1.8 percent lower at $1,776.
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