Nickel hit a six-week peak on Friday as speculators resumed buying in a rally driven by production cuts in China, falling inventories and higher steel prices. Benchmark nickel on the London Metal Exchange (LME), which has gained 14 percent over the past month, closed up 1.5 percent in final open outcry trading at $15,445 a tonne after touching $15,690, the highest since April 19.
Open interest in LME nickel was at its highest since January 2015.
"You've seen a huge rally, particularly on the Shanghai side. What's really important is to keep an eye on profit taking," said Oliver Nugent, commodities strategist at ING Bank in Amsterdam.
Profit taking pushed LME nickel prices into negative territory during morning European trading before they bounced back.
"Even though the bulls are chasing it now, we think there's got to be a demand hit from the stainless steel side of things," Nugent added.
High grade nickel traded on the LME is about $1,000 per tonne more expensive than nickel pig iron, an iron-rich feed for stainless steel plants, which will drive switching to the cheaper material, Nugent added.
The bulk of nickel is used to make stainless steel.
In the near term, however, nickel got a boost when an official at Shandong Xinhai Technology Co confirmed on Friday the company had been told to reduce output of nickel pig iron.
The most-traded nickel contract on the Shanghai Futures Exchange rose as much as 5.5 percent to 120,000 yuan ($18,702) a tonne, a three-year high. The contract notched up a weekly gain of 6.2 percent, its biggest since the week ended January 26.
Nickel was also bolstered as Shanghai steel rebar prices rose to their highest in nearly three months.
Metals got support from a private survey that showed China's manufacturing sector expanded at a steady pace in May.
Canada, Mexico and the European Union retaliated against US tariffs on steel and aluminium with levies on billions of dollars of US goods.
The news on tariffs gave only a minor boost to LME aluminium, which ended 0.6 percent higher at $2,305 a tonne, partly because the market expected a deal would be concluded with big aluminium exporter Canada, analysts said.
LME copper finished up 0.6 percent at $6,896 a tonne. The price appears to be consolidating ahead of the June options expiry next Wednesday, "where a lot of upside open interest is to roll off", said Alastair Munro at broker Marex Spectron.
"Short term, it is has breached below an ascending trend and could revisit $6,710/$6,668 with next support at $6,597," Stephanie Aymes, head of technical analysis at Societe Generale, said in a note.
LME zinc closed little changed, up 0.03 percent at $3,101 a tonne, lead dropped 0.7 percent to $2,442.50 and tin rose 0.7 percent to $20,750.
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