Nickel Plunges Most Since 2011, Reversing Recent Rally

Nickel slumped the most since 2011 in London as investors judged a rally that lifted the metal’s price as much as 56 percent this year to be exaggerated.

The benchmark contract for delivery in three months fell as much as 9.7 percent today, after a 4.6 percent slump yesterday. Prices had surged even with stockpiles tracked by the London Metal Exchange up 6.8 percent in 2014. The commodity’s 14-day relative strength index advanced to 91 this week, the highest since 2004, signaling overbought conditions to traders who study historical price patterns.

Nickel has jumped 34 percent since the end of January after a ban on ore exports in Indonesia, the world’s top supplier of the metal from mines. At the same time, demand from makers of stainless steel “remains relatively weak,” said Edward Meir, an analyst at INTL FCStone Inc. in New York.

“The nickel juggernaut is sputtering,” Meir said in a report today. Rising inventories are “telling us that there is no mad scramble” for supplies, he said.

Nickel for delivery in three months lost 6.4 percent to settle at $18,750 a metric ton at 5:50 p.m. on the LME, the biggest drop since September 2011. Prices reached a 27-month closing high of $21,000 on May 13.

The 14-day relative strength index dropped to 53 after reaching 91 on May 13. Readings above 70 signal to some investors that prices may decline.

“Talk about skimming speculative froth,” Michael Turek, a senior director at Newedge USA LLC in New York, said by e-mail. “This looks like the funds are pouring beer down the sink.”

China Demand

The gain in nickel inventories eased concern that Indonesia’s ban would drain supplies. China, the top consumer, has enough ore to make nickel pig iron, a low-grade alternative to refined metal, through August, according to Beijing Antaike Information Development Co.

Prices also had climbed amid speculation that the U.S. and Europe might add to sanctions on Russia, the second-largest producer of refined nickel, after it intervened in Ukraine. Vale SA’s suspension of activity last week at a South Pacific plant added to supply concerns.

The plunge “illustrates the extent to which speculation was apparently responsible for driving up the nickel price,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said in a report. “The correction process could well continue for the time being.”

Copper for delivery in three months slid 0.5 percent to $6,885 a ton ($3.12 a pound) on the LME. Aluminum, zinc, lead and tin declined in London.

In New York, copper futures for July delivery fell 0.5 percent to $3.1445 a pound on the Comex.

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