Nickel Drops on Concern Supply Cutbacks Won't Dent Metals Glut

  • Vale raises nickel output guidance for 2016 amid rout
  • Metal markets need recovery in demand growth: Morgan Stanley

Nickel fell to the lowest in a week, leading losses in industrial metals, on mounting concern that mining companies are reluctant to cut production even as demand weakens.

Vale SA raised its nickel and copper production guidance for 2016 this week. Morgan Stanley said Wednesday it would take a “recovery in demand growth” for nickel, zinc and copper to post sustained price gains, and Goldman Sachs Group Inc. said in a report last month that supply cutbacks have been insufficient to make up for ebbing demand.

Nickel prices have fallen 42 percent in London this year on signs that the slowest economic expansion in a generation in China, the world’s largest consumer, is hurting consumption. Industrial-metals prices are also being eroded by a strengthening dollar, which diminishes the appeal of commodities as alternative assets.

“Everything is lower today amidst currency turmoil and apparent producer reluctance to sacrifice near-term market share for long-term market health,” Michael Turek, the head of base metals at BGC Partners Inc. in New York, said in an e-mail.

Nickel for delivery in three months slipped 1.4 percent to settle at $8,850 a metric ton on the London Metal Exchange, after touching $8,670, the lowest since Nov. 25.

Nickel smelters in China, the largest producer, said in November that they plan to cut output next year by at least 20 percent in a bid to shore up prices after the metal plunged to its lowest in 12 years. Morgan Stanley won’t include Chinese reductions in its list of announced cutbacks in its supply-and-demand balance estimate because it doesn’t see them as sustainable.

Aluminum, copper, zinc, lead and tin also declined on the LME. On the Comex in New York, copper futures for March delivery gained 1.4 percent to $2.061 a pound.

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