Nickel pushed higher on Thursday as speculators continued to buy due to ongoing concerns over supply from Indonesia and Russia, but some analysts worried that prices had overshot fundamentals. Nickel prices have surged nearly 30 percent so far this year to 14-month highs, although inventories were still plentiful, said analyst Gayle Berry at Barclays in London.
"There's good reason for nickel to have had a strong rally this year with the Indonesian story, but it just feels as though it's gone a bit too far and I think prices look a bit toppy," she said. Three-month nickel on the London Metal Exchange, untraded at the close, was last bid at $17,925 a tonne from $17,650 at the close on Wednesday. It hit a peak of $18,105 on Wednesday, its strongest since February 18, 2013.
Nickel's rally was triggered in January when Indonesia, the world's largest exporter of nickel ore, banned unprocessed mineral exports. The market has been boosted further by worries about potential sanctions on another big producer, Russia, due to the Ukraine crisis. "There isn't an immediate shortage of material, which makes the scale of the price increase look a bit overdone. The market is quite long so I think there's risk of something triggering long liquidation," Berry said.
The ratio of LME inventories to consumption is at 10 weeks, the highest of any LME base metal, she said. LME nickel stocks rose 186 tonnes on Thursday to 277,434 tonnes. Liquidation could take prices back to $16,000 a tonne, but prices should find decent support due to widespread views that supply could tighten in the second half, Berry added.
Goldman Sachs also introduced a note of caution, saying in a note it expects to see "policy moderation" from the Indonesian government by the end of the year. Nearer term, however, it said nickel could rally on concerns about supply from Russia, the world's second-largest producer of refined nickel, producing 12 percent of global supply. Copper and other base metals edged higher on the impact from Wednesday's slightly better-than-expected Chinese growth data, which has eased some fears about a hard landing in the world's top consumer of industrial metals.
LME copper ended at $6,632 a tonne from $6,619 at the close on Wednesday, while the most-traded copper contract on the Shanghai Futures Exchange rose 1.2 percent to 46,600 yuan a tonne. "Chinese GDP helped to lift sentiment," said Joyce Liu, analyst at Phillip Futures. "It has eased some concerns on Chinese growth." China's economy grew 7.4 percent in the first quarter, from a year earlier, exceeding forecasts of 7.3 percent growth, but down from 7.7 percent in the previous quarter.
LME lead closed at $2,142 per tonne from a last bid on Wednesday of $2,135, tin closed at $23,405 from a last bid of $23,450, zinc at $2,060.50 from a last bid of $2,066 and aluminium at $1,865 from $1,875. The LME is closed on Friday and Monday for the Easter weekend.