Nickel prices hit their highest in a week on Wednesday as speculators bought on fears of shortages from major producer Indonesia, while at least half of London Metal Exchange inventories were under the control of one party.
Nickel, mainly used to make stainless steel, has shot up 50% so far this year, fuelled by concerns that Indonesia will move forward a mineral export ban due in 2022.
"The price rise is exaggerated," said Commerzbank analyst Daniel Briesemann, adding that price gains were not supported by supply and demand fundamentals.
"Lower exports of nickel ore should at least in part be balanced by higher exports of higher-value nickel products, so the impact would not be as severe as appears at first glance."
Benchmark nickel was the strongest performer on the LME, advancing 2.5% in final open outcry trading to $16,090 a tonne, the highest since Aug. 20.
The net speculative long position of nickel on the LME had expanded to 20% as of Friday's close, a fresh year-to-date high, Alastair Munro at broker Marex Spectron said in a note.
One party holds 50% to 80% of available LME inventories, data showed, leading to tight supplies in the LME system, traders said.
They said this also likely contributed to a jump in the premium of cash LME nickel over the three-month contract to $79 a tonne by Tuesday's close, the highest in a decade.
Waste from a nickel plant in Papua New Guinea owned by Metallurgical Corporation of China spilled into the adjacent Basamuk Bay over the weekend, three sources told Reuters on Wednesday.
An equipment failure at a zinc refinery in Canada owned by Teck Resources will result in an estimated production loss of 20,000-30,000 tonnes, the firm said on Tuesday.
This is not expected to be a "game changer" for the overall zinc market, but it could tighten supply in the North American market and also encourage stock outflows from Chinese bonded warehouses, analyst Wenyu Yao at ING Bank said in a note.
Deteriorating Sino-US trade ties and interest rate reforms are fuelling speculation China will start cutting key rates from next month, but bankers expect borrowing costs to come down only gradually.
Chinese aluminium giant Chalco's, production of the metal fell more than 8% in the first-half of 2019 from the same period a year earlier, data showed, highlighting the impact of low prices on Chinese smelters. LME copper rose 0.1% to finish at $5,690 a tonne, aluminium declined 0.8% to $1,746, zinc lost 0.8% to $2,257, lead slid 1.6% to $2,066, while tin ended unchanged at $15,750.