Nickel rose on Wednesday as investors saw a recent slide in prices as a buying opportunity ahead of expected shortages, while copper recovered after hitting a fresh three-month low as uncertainly about global growth weighed on markets.
Three month nickel on the London Metal Exchange gained 1.61 percent to end at $17,400 a tonne, after touching $16,483 on Tuesday, the lowest in more than five months. Investors piled into the market earlier in the year, sending prices to a peak of $21,625 in May, the highest in more than two years, after top exporter Indonesia imposed a ban on shipments of unprocessed ore.
Nickel prices are up 25 percent so far this year. The gains of 56 percent at the year's peak have contracted as speculators liquidated long positions when anticipated shortages failed to emerge in China and as the Philippines filled the gap in ore supply by much more than expected. The lack of Indonesian ore has not squeezed the Chinese nickel pig iron (NPI) sector as much as expected due to Philippine replacement supply, but NPI costs are now higher than LME nickel prices, said Colin Hamilton, head of commodity research at Macquarie.
"In nickel, people are still focused on the cost of making Chinese nickel pig iron at about $18,500 a tonne, and we're trading well below that (in LME nickel) at the current time." "The other thing people have on their radar is the monsoon season in the Philippines, which could push ore prices up and push those NPI production costs higher."
Macquarie has stuck with bullish forecasts, even though the market is well supplied with refined nickel. The bank expects LME nickel to surge to an average of $23,750 a tonne next year and $28,000 in 2016 as shortages kick in. All the other base metals turned higher, led by copper, after data showed sales of new US single-family homes surged in August to their highest in more than six years, offering confirmation of the housing market recovery. Still, gains were limited by concerns about European growth and by recent mixed economic numbers from China, which have raised questions about whether China's authorities would further stimulate the economy of the world's biggest metal consumer.
German business sentiment fell for a fifth straight month in September to its lowest level in nearly 1-1/2 years, dampening expectations for a third-quarter rebound in Europe's largest economy. LME copper slid to a session low of $6,686 a tonne, the weakest since June 19, but recovered to end at $6,742 a tonne, up 0.40 percent. London copper has hit repeated three-month lows this week, partly weighed down by concerns over the prospect of increased refined supply.
"In August it's not great to be honest, but in September usually manufacturing activity improves. And I do believe China will do a little more minor stimulus to help the economy, but as always it won't do big stimulus," said Wan Ling, an analyst with consultancy CRU in Beijing. Concerns about rising supply were highlighted when Newmont Mining Corp raised its full-year copper production forecast this week after ending a tax dispute with the Indonesian government, which will allow it to resume copper concentrate shipments.
"That looks like the start of this oversupply story coming through, but we need to see it (evidence of increased shipments) for a few months to ease the physical market tightness," a trader in Singapore said, adding that traders who shorted the market now could get burnt. A lack of immediately available copper was reflected in LME spreads, with cash copper trading at a $53 premium against the benchmark this week, the highest since June. In other metals, aluminium ended at $1,975 a tonne, up 0.46 percent, while zinc closed up 1.20 percent at $2,281, lead traded up 1.06 percent at $2,093 and tin closed up 0.47 percent at $21,275.