Nickel prices slid to their weakest levels in over 12 years on Tuesday, amid worries about high inventories, while copper sunk to fresh 6-1/2 year lows on persistent worries over China's economy. Data on Tuesday showed another increase in refined nickel inventories on the London Metal Exchange to 437,334 tonnes, a gain of 11 percent over the past month.
Weak demand from the stainless steel sector, the dominant source of demand for nickel, and a glut of supply has hammered prices. Analyst Ash Lazenby at HSBC said the bank slashed nickel price forecasts by 22-34 percent for 2016-18, saying nickel ore stockpiles were high at 773,000 tonnes and will take about three years to halve. "We cut our price forecasts ... reflecting a protracted recovery as a result of slow supply discipline and heightened inventory levels," he said in a note.
LME three-month nickel, which was the worst performer on the LME last year with losses of over 40 percent, tumbled to $8,120 a tonne, the lowest since May 2003, before paring losses to close at $8,220, a decline of 0.6 percent. Base metals have been hit by relentless selling pressure on fears over economic and demand growth prospects in top consumer China. Benchmark LME copper hit another multi-year low, ending down 0.7 percent at $4,355 a tonne, its weakest since May 2009.
Copper briefly moved into positive territory during the session as some investors bought back short positions to lock in profits, traders said, but those gains evaporated as other speculators resumed the selling. A revival of manufactured exports in China, which accounts for nearly half of global copper demand, may need a weaker yuan , analysts say. But China's central bank has other ideas, stepping up efforts to curb bets against the yuan.
"China needs to let the currency find its own level, which could result in stronger growth and commodity demand further down the road," said Danske Bank analyst Jens Pederson. A firmer US currency also undermined demand for metals as it makes dollar-denominated metals more expensive for non-US firms. This is a relationship used by funds which trade using buy or sell signals generated by numerical models.
Traders say a seasonal lull in demand ahead of China's Lunar New Year holiday was making the weak outlook appear even worse. Three-month aluminium, which has been the best LME performer this year, finished down 0.8 percent at $1,450 a tonne, the lowest since December 1 last year.
Six large Chinese aluminium producers in China are considering forming a joint venture company that will handle primary aluminium stockpiling, a report by state-backed research firm Antaike said. Lead bucked the weaker trend and closed up 0.4 percent at $1,607 after touching the weakest since November 24 last year, while zinc ended 1 percent weaker at $1,468 and tin dropped 1.7 percent to $13,450. Both zinc and tin hit the lowest levels since July 2009.
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