Nickel bounces on supply worries, stainless steel market

LONDON: Nickel rebounded on Tuesday after two days of losses as worries persisted about supply from Russia and Indonesia while stainless steel buyers were also fuelling the rally.

Nickel prices have surged 33 per cent this year after Indonesia imposed a ban on unprocessed ore exports and as investors became concerned that the Ukraine crisis could squeeze supply from major producer Russia.

Nickel price gains also are reinforced by the structure of the stainless steel market, which accounts for about two-thirds of global nickel demand, said Nic Brown, head of commodities research at Natixis in London.

Surcharges for higher nickel prices are imposed with a one-month delay and many buyers aim to beat the price increases.

"You can easily get momentum building up in nickel in the Western world based upon these stainless steel surcharges," Brown said.

"Potential buyers of stainless steel will decide it's a good idea to be stocking up in advance of prices rising in future and that creates its own pro-cyclical impetus.

Three month nickel on the London Metal Exchange climbed to a session high of $18,595 a tonne before paring gains to $18,505 by 1037 GMT, up 1.3 per cent.

The gains put nickel within striking distance of a 15-month peak of $18,715 hit on April 28.

A narrowing differential between cash and benchmark prices reflects growing appetite for spot nickel supplies that is underpinning prices. LME cash nickel traded at a $26 discount to the benchmark contract, up from $53 in mid-April.

Traders said last week that physical supply of nickel has stabilised in Europe as consumers slowed a burst of stockpiling.

COPPER DIPS

Copper and aluminium edged lower in thin trading as markets reopened after a long holiday weekend, digesting mixed data from top metals consumer China and the United States.

LME copper slipped 0.2 per cent to $6,705 a tonne after gains of 1.1 per cent from the previous session. UK markets reopened after a holiday on Monday.

London copper has been underpinned by steady second-quarter demand from top consumer China, although it has struggled to find momentum since dropping to its weakest since mid-2010 at $6,321 a tonne on April 19.

Still, signs that a US recovery is taking hold are brightening copper's price prospects, Jonathan Barratt, chief executive of commodity research firm Barratt's Bulletin in Sydney, said.

"The market is still trying to find out the direction for copper - but we continue to see support for prices on the dip," he said. "When you look at copper where it is, and the sort of growth we are expecting, then copper certainly is an undervalued play."

The most-traded July copper contract on the Shanghai Futures Exchange slipped by 0.3 per cent to 47,560 yuan ($7,600) a tonne. The ShFE was closed Thursday and Friday last week, making Tuesday the first day markets were open concurrently since last Wednesday.

Injecting some cheer into markets, growth in the US services sector accelerated in April, rising at the fastest pace in eight months as new orders jumped and overall activity quickened by the most since early 2008, an industry report showed on Monday.

This helped to offset a gloomier reading on China's factory growth. Activity in China's manufacturing sector contracted for a fourth consecutive month in April, a private survey showed on Monday, adding to questions about whether the world's second-largest economy is still losing momentum.

Looking ahead, further indications will come with trade data on Thursday. Growth in China's factory output and investment likely stabilised in April as the government uses targeted policy measures to underpin growth, while the pace of declines in exports and imports may have eased, a Reuters poll showed.