Nickel bounced off its weakest level in nearly a year on Friday while zinc hit a two-week low, pressured by weaker iron ore and oil prices as well as concern about demand in top consumer China. Zinc prices were also knocked by a jump in available inventories, showing that supplies were adequate despite the closure of major mines last year. Three-month LME copper finished 0.6 percent weaker at $5,665.
Both zinc and nickel are used in the steel industry so are sensitive to iron ore and steel prices while oil is a key input in mining. "The steel-related metals such as nickel and zinc are among the worst performers, feeling the pinch from iron ore. Oil is not helping. It's crashing after the disappointment from the Opec meeting," Gianclaudio Torlizzi, Partner at consultancy T-Commodity in Milan, said. Spot iron ore has tumbled about 40 percent from this year's peak, although it had a brief respite on Friday, and Shanghai rebar futures fell for a seventh session in a row.
"My view is that at this point the downside in all the base metals is not huge. We'll probably see the last leg down and I would take that as an opportunity to go long," Torlizzi said. Benchmark zinc on the London Metal Exchange closed down 1.6 percent at $2,529 a tonne after touching $2,512, the weakest since May 18. On-warrant LME inventories - those not earmarked for delivery and therefore available to investors - climbed 11 percent on Friday to 179,325 tonnes.
LME nickel failed to trade in closing open outcry activity and was bid up 0.8 percent at $8,910 a tonne, recovering from a low of $8,700, the weakest since June 8, 2016. Analyst Bernard Dahdah at Natixis said nickel's losses were an overreaction and prices would recover when there was more certainty over the extent of nickel ore shipments from Indonesia. "We do not expect it (shipments) to return to levels seen prior to the 2013 ban," a note said.
"The market is stalling into a down trend channel from February's $6,204 high," Alastair Munro at Marex Spectron said in a note. A break below $5,602 would open up the potential for a move to $5,500, he said. Chinese base metals demand is expected to taper off in the second half of the year, Richard Knights of Liberum said. "With growth in credit rolling off since November 2016, metal demand should follow from mid-year, just as supply growth in iron ore and coal markets is accelerating," he said in a note. Aluminium closed up 0.2 percent at $1,931, lead ended down 0.1 percent at $2,108 while tin dropped 0.7 percent to $20,300.
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