Nickel is leading declines of the main industrial metals on the London Metal Exchange this year, with surpluses dragging down copper to aluminum and zinc.
Nickel production will exceed demand by 68,000 metric tons this year, and copper will have its first surplus since 2009, according to Standard Bank Group Ltd. Inventories of nickel in warehouses monitored by the LME rose 85 percent in the past year to a record, according to bourse data today. Aluminum and nickel are near four-year lows and copper last month was the cheapest in three years.
“2013 has been a tough year for global commodity markets,” UBS AG in London said in a report dated yesterday. “While demand growth for key markets such as iron ore, the coals and copper is actually positive and robust, they continue to be overwhelmed by even stronger supply growth.”
Industrial metals have slumped this year amid signs of economic slowdown in top user China and on speculation the U.S. Federal Reserve will taper bond purchases. Nickel, along with aluminum, zinc and copper, will be in surplus this year, according to Barclays Plc. Aluminum will have a seventh consecutive surplus, Morgan Stanley estimates show.
Nickel for delivery in three months on the LME rose 2.4 percent to $13,641 a ton by 3:57 p.m. today. The metal used in stainless steel yesterday extended declines to the lowest price since May 2009. Tin is the second-worst performer on the LME, down 16 percent. Aluminum fell to a four-year low of $1,758 a ton on June 27 and has dropped 12 percent this year.
UBS yesterday cut this year’s nickel forecast by 10 percent and reduced the 2014 estimate by 6 percent. The bank’s analysts see “subdued” commodities prices seen through 2015.
Nickel open interest, or the number of futures outstanding, climbed to 210,266 contracts as of July 8, the highest level on record, LME data showed today. Open interest expanded from a week earlier as prices fell 3.8 percent, suggesting new short positions, or bets on declines.
“Fresh shorts were added by technical players,” RBC Capital Markets Ltd. said in a report today. “Current prices mean a lot of Chinese nickel pig iron production is no longer viable. This is a market that is primed for a squeeze.”
Copper production will exceed demand by 150,000 tons this year, Standard Bank estimates. Prices last month fell to $6,602 a ton, the lowest since July 2010, and are down 14 percent this year. The zinc surplus will be 290,000 tons in 2013, according to Barclays. Zinc has dropped 8.8 percent this year.