Nickel prices tumbled to 11-month lows on investor concern over rising supply from top producers Indonesia and the Philippines as well as weak demand from stainless steel mills in China.
Benchmark nickel on the London Metal Exchange ended down 1.6 per cent at $US8970 a tonne from an earlier $US8825 its lowest since late June.
“People are looking at the potential for higher supplies from Indonesia and the Philippines and getting very bearish,” said Societe Generale analyst Robin Bhar. “Demand from the stainless sector is particularly weak.”
President Rodrigo Duterte this month appointed a former military man as the new environment minister after Congress dismissed his first choice, who had ordered the closure of more than half of the mines in the world’s top nickel ore supplier.
The relaxation in January of Indonesia’s ban on exporting unprocessed nickel ore – in place since the start of 2014 – has added to concerns over rising supply.
About two thirds of global nickel supply is used to make stainless steel, most of which is produced in China.
“I think the downside is pretty limited. Prices are below the marginal cost or the 90th percentile, which adjusted for currency and other things is around $US10,300/$US10,400,” SocGen’s Bhar said.
“Prices will remain trading at very low levels through 2017 and much of 2018, until a substantial supply response both in China and outside of China eradicates our forecast surplus of 37,000 tonnes in 2017 and about 100,000 in 2018,” Goldman Sachs analysts said in a note.
High inventories are also a negative for prices, traders say. Stocks at more than 378,000 tonnes account for almost 20 per cent of global consumption estimated at nearly 2 million tonnes this year.
Traders are watching large holdings of cash contracts and warrants of aluminium and nickel.
Large holdings of tin warrants and cash contracts and low LME stocks – below 2000 tonnes and the lowest since 1989 – have fuelled concern about a tight LME market.
Tighter supply on the LME has seen the cash contract over the three-month command a premium of more than $US100 a tonne since mid-May . Benchmark tin ended down 0.5 per cent at $US20,325.
China’s manufacturing sector expanded at a solid pace in May thanks to robust construction and infrastructure investment, but worries about a slowdown over coming months weighed on industrial metals generally.