Nickel raced to its strongest level in more than two years on Thursday as industrial consumers scrambled to secure supplies and speculators extended their buying spree after Vale halted its Goro nickel operations in New Caledonia.
Though the Goro shutdown was not expected to have a major impact on physical nickel supplies, it served to fire up bullish sentiment and chart-based purchases.
The nickel market, which has soared nearly 40 per cent this year, was already nervous about shortfalls from top producer Indonesia and worried about potential Russian supply problems.
“Today we’ve seen some panicked consumer hedging and the hedge funds have already been in there for a while,” said analyst David Wilson at Citi in London.
Three-month nickel on the London Metal Exchange (LME) surged 6.1 per cent to a high of $19,786 a tonne, the strongest since March 2, 2012. It later retreated to $19,451 a tonne at 1421 GMT, up 4 per cent from Wednesday’s close, with trading volumes of over 10,700 lots compared with Wednesday’s full-day volume of 5,121.
Nickel prices have been on the upswing since Indonesia banned exports of ore in January and recently received a fillip from worries that sanctions against Russia could hit top refined producer Norilsk Nickel.
Prices have also been supported recently by nickel buyers in China and Japan scrambling to secure supplies as fear of shortages boosts demand for both refined metal and long-term ore contracts.
The immediate trigger for Thursday’s price jump was the suspension by Vale of production at the Goro mine and processing plant after an effluent spill. The company was waiting to hear from the local government about resuming operations.
While Goro has capacity of 60,000 tonnes, its production is much smaller because of technical difficulties, said analyst Joel Crane of Morgan Stanley in Melbourne.
“Physically, it doesn’t do a lot to the market, but sentiment-wise I am sure it will help – the perception of severe tightness is driving prices,” he said.
Vale said in November it expected to produce 40,000 tonnes of nickel from the Goro mine in 2014.
Wilson said the second quarter is the busiest period for stocking of stainless steel, usually tailing off from late May, which could bring a modest correction in nickel. Stainless steel accounts for about two thirds of global nickel demand.
“I don’t think it’s going to pull back very far. If there’s a $1,000 pull-back, I think that would probably be something to buy into,” Wilson said. “We definitely expect the market to move into deficit in the second half of the year and see peaks of $22,000, or maybe slightly above.”
CHINESE TRADE DATA
Appetite for base metals also picked up after China’s exports rose slightly in April, beating forecasts for a decline.
LME copper climbed 0.6 per cent to $6,693.25 a tonne.
China’s imports of iron ore, copper, soybeans and crude oil rose in April on stronger seasonal demand, data from the General Administration of Customs showed.
Chinese copper imports rose 7.2 per cent month-on-month in April, extending gains made in March.
China is the world’s top copper consumer, accounting for about 40 per cent of refined demand.
“Chinese traders have clearly taken advantage once again of the low copper prices ... to buy up material opportunistically,” Commerzbank analysts said in a note.
“In other words, some of the copper purchased is probably not attributable to real demand but went straight into warehouses.”
Copper prices tumbled to a more than 3-1/2 year low in March, and is trading almost 9 per cent lower for the year to date.
Three month LME copper Most active ShFE copper Three month LME aluminium Most active ShFE aluminium Three month LME zinc Most active ShFE zinc Three month LME lead Most active ShFE lead Three month LME nickel Three month LME tin ($1 = 6.2343 Chinese Yuan)
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