Nickel slid more than 3 percent on Tuesday as bearish investors renewed a selloff of the metal which has been weighed down by oversupply and record inventories. While nickel prices may succumb to another onslaught in the short term, a prolonged downtrend is not sustainable due to the dynamics in the Chinese market, said analyst Nicholas Snowdon at Standard Chartered in London.
"In the very short term, if there's enough aggression to the shorting, then prices could certainly go lower, but it's not really related to any fundamental developments, just very short-term positioning extremes," he said.
"If anything, the data from the nickel market has started to turn slightly more constructive over the past couple of months.
We have started to see more and more tightness emerge in the Chinese nickel market."
Last week, heavy selling by hedge funds sent nickel down to $12,310 a tonne, the weakest in nearly six years, but it rebounded before the long Easter weekend.
Three-month nickel on the London Metal Exchange on Tuesday reversed an early rally to $13,190, tumbling 3.7 percent to close at $12,550 a tonne.
Most nickel pig iron (NPI) producers in China are losing money at current low prices, which will eventually create shortages, analysts say.
NPI is used to make stainless steel and is a cheaper alternative to refined nickel and ferronickel in China.
But this has yet to affect the global market, where inventories are still close to record highs, evidenced by another rise in LME stocks on Tuesday.
Other metals, including copper, climbed as markets returned after the extended break, but buying was capped by persistent concerns over slowing demand growth in China, the world's top metals user.
"Copper is performing as we expected, which is a slow steady recovery from the brutal January sell off," said analyst Joel Crane of Morgan Stanley in Melbourne.
"But at the end of the day, if Chinese demand continues to disappoint, then nothing will be saved - even copper."
LME copper ended 1.4 percent higher at $6,065 a tonne after closing the previous session down 1.1 percent.
Copper fell to its weakest since March 20 at $5,952.50 last week, as it struggled to regain momentum from more than five-year lows below $5,400 tipped in late January, scarred by weaker-than-usual seasonal demand and ample refined supply.
Zinc gained 1.2 percent to end at $2,153 a tonne after hitting a peak of $2,160, the strongest since February 16, while lead climbed 1.4 percent to close at $1,906 after touching the highest since January 21.
Aluminium edged up 0.1 percent to finish at $1,784 a tonne and tin closed unchanged at $16,750.
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