Nickel prices bounced on Friday as the dollar slid, but the market is braced for another sell-off by funds reversing bets on higher prices, with expectations of an oversupplied market adding to the pressure.
Prices of industrial metals overall were boosted as the US currency slid after a weak US April jobs report, making dollar-denominated metals cheaper for non US-firms.
Traders said some long nickel positions held by funds had been unwound on Thursday and earlier on Friday. On the London Metal Exchange (LME) funds' long positions amounted to 40,055 lots (240,330 tonnes) on April 29 from about 21,000 lots earlier in the month.
Benchmark nickel on the LME ended up 0.5 percent at $9,065 a tonne. It is down about 4 percent this week and on Thursday hit a two-week low of $8,920.
Nickel gained more than 11 percent last month on speculation over the potential for improved demand from stainless steel mills in China.
"There wasn't a fundamental story in the rally, inventories are still too high. I suspect prices are going to fall back further," said Citi analyst David Wilson.
"Stainless steel production was up 6.5 percent year on year in the first quarter, but it was down from the fourth quarter."
Nickel stocks in LME-registered warehouses have dropped to 415,284 tonnes from more than 450,000 tonnes in mid-January, but they still account for a significant proportion of global consumption estimated at about 1.9 million tonnes this year.
Three-month nickel hit a 13-year low of $7,550 a tonne in February.
"Nickel producers have probably experienced the greatest pressure of all the base metal producers from low prices during this commodities downturn, with an estimated 60-70 percent of producers losing cash at recent prices," Macquarie analysts said in a note.
"With nickel prices somewhat brighter than the extreme lows but still firmly in four-digit territory and some 60 percent into the cost curve, the need for more discipline is clear." Prices of industrial metals have gyrated this year with the US currency.
Copper rose 0.5 percent to $4,810 a tonne, up from an earlier four-week low of $4,755.
Aluminium lost 0.6 percent to $1,598, zinc gained 1.5 percent to $1,888, lead rose 0.9 percent to $1,751 and tin added 0.4 percent to $17,425.