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LONDON: Nickel prices touched a three-week high on Tuesday, boosted by dwindling inventories and short-covering by speculators, but expectations of rising supply from Indonesia curbed the upside.

Three-month nickel on the London Metal Exchange (LME) gained 0.7% to $24,010 a tonne by 1610 GMT after hitting its strongest since March 7 at $24,310.

Nickel prices had slumped 28% over about seven weeks, weighed down by concern over weak demand and rising output in Indonesia, before rebounding last week.

“Nickel got overdone on the downside, but I would argue that $23,000 or $24,000 is an equilibrium, fair value for the nickel market,” said independent consultant Robin Bhar.

“Demand will be strong, no doubt about it, but there’s a lot of supply coming from Indonesia, so I think we’ll have a market either in balance or moving into surplus this year.”

The short speculative position on the LME reached 20% of open interest by Friday’s close, the largest since July 2022, but shorts have recently been closing out some positions, broker Marex said in a report.

Nickel prices jumped on Friday after data showed that nickel inventories in warehouses linked to the Shanghai Futures Exchange slid 28% during the week to their lowest since July last year.

On the LME, the nickel cash contract discount to three-month futures has tumbled to $179 a tonne from $333 over the past three sessions, indicating concern about short-term supply.

LME three-month copper rose 0.2% to $8,985.50 a tonne, helped by easing concern about the health of the banking sector and firmer risk appetite, Bhar said.

Downstream copper demand in China dropped slightly last week owing to “overseas macro factors” and rising prices, Huatai Futures analysts said in a note.

LME aluminium climbed 1% to $2,387.50 a tonne, zinc gained 0.6% to $2,930, tin was up 1.2% at $25,725 and lead dipped 0.4% to $2,125.50.

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