Base metals fell on Tuesday, led by nickel, as investors sold risky assets on worries about demand in top consumer China and on concern about tensions in Ukraine. Nickel, mainly used in stainless steel, fell the most as investors also locked in profits following a rally to 14-month highs due to a ban on ore shipments from top exporter Indonesia and concern about supply from Russia, another top producer.
Three-month nickel on the London Metal Exchange fell as much as 3.7 percent. It was untraded at the close, but last bid at $17,650 from $17,790 at the close on Monday. On Monday, nickel rose for an 11th straight day to a high of $17,917 a tonne, its strongest since February 19 last year. Monday's rise had brought its gain to 28 percent this year after it shed almost 19 percent in 2013.
"It's not surprising (to see nickel fall), given the very strong performance in recent days and weeks," said Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt. "Much of the news about the continuation of the Indonesian ban has already been priced in, and the market was due for a correction." The Indonesian government banned exports of unprocessed nickel ore in mid-January to force the creation of value-added mineral processing in the country.
Investors also worried about a potential supply squeeze from Russia after US President Barack Obama told Russian President Vladimir Putin that Moscow would face further costs for its actions in Ukraine and should use its influence to get separatists in the country to stand down. "The nickel story is quite good, and we can hit $19,000 a tonne," said analyst Dominic Schnider of UBS Wealth Management in Singapore. "We are going to see a market which is under-supplied as long as the ban remains in place, and there seems to be no change in that ban by Indonesia."
In a Reuters poll, analysts raised their forecasts for 2014 cash nickel by 5 percent from the previous poll to $15,650.50 a tonne due to persistent concerns about potential shortages. In 2015, prices are expected to climb to $17,395.80. The base metals complex was also hit by data showing China's money supply grew at the weakest pace in more than a decade in March, another sign of softening momentum in the world's second-largest economy and biggest metals consumer. GDP data due on Wednesday is expected to show China grew at its slowest rate in five years in the first quarter, according to a Reuters poll. "The market seems to be in a risk-off mood at the moment," Weinberg said.
Three-month copper on the LME closed at $6,540 a tonne from $6,667 on Monday. Copper prices are expected to fall this year as supply rises at a faster pace than demand, according to a Reuters poll. The impact of the Ukraine crisis on confidence in financial markets was apparent on Tuesday when the leading Zew survey showed German analyst and investor sentiment fell for the fourth month in a row in April. A stronger dollar also weighed on metals by making commodities priced in the US currency more expensive to buyers outside of the United States. Three-month aluminium closed at $1,853 a tonne from a last bid of $1,882 and tin closed at $23,375 from $23,450. Zinc closed flat at $2,045 a tonne.