UK: UPDATE 2-NICKEL SPIRALS TO EIGHT-MONTH LOWS ON LME.
21 Jun 2000 14:39GMT
(Adds physical trader coments par 12-15, latest nickel price par 4)
By Camila Reed
LONDON, June 21 (Reuters) - Nickel prices sank 2.9 percent in early London Metal Exchange (LME) trading to be bid at $7,570 a tonne, their lowest since October 1999, traders said on Wednesday. Bank selling pushed three months delivery prices, which are prone to wild gyrations, through chart support at $7,700, triggering stop-loss sales.
The cash/threes spread, a measure of market tightness, contracted to a $100/$130 backwardation from more than $200 on Tuesday as lending came in for nearby months. A backwardation occurs when the cash price exceeds the forward price and suggests a lack of nearby supplies.
By 1150 GMT prices had recovered slightly and were trading at $7,640/60.
Dealers said the technical outlook for the metal, used in stainless steel making, looked very weak and prices were unlikely to return to March's five-year highs of $10,460.
"The bull run is over...There is no obvious place for it to stop, although $7,200 is a reasonable place for the time being," one senior LME floor trader said.
Nickel took centre stage at the LME throughout May as the market prepared to soar on expectations of a strike at the western world's largest producer, Canada's Inco Ltd.
Prices plunged when that failed to happen, but have made several attempts to rally on what many market players saw as solid market fundamentals.
LME stocks are at eight-year lows of 21,258 tonnes and still falling, and demand has been robust from the stainless sector.
"The market is being complacent, physically nothing has changed...the fundamentals will catch up again with the price," said Maqsood Ahmed at LME ring dealer Credit Lyonnais Rousse.
"If they think the market has peaked they may be wrong...people are trying to anticipate the supply-side changes way, way too early and they might pay a hefty price for that," Ahmed said.
A London-based physical trader said it was premature to discount a rally.
"People are trying to push it down, but there is buying waiting. I think we will see $8,500 definitely, $9,000 probably and $9,500 maybe."
He said he had sold over 400 tonnes of Russian uncut nickel at a $43 premium in warehouse Roterdam over LME cash rates on Wednesday.
Nickel briquettes were very scarce and sales were being done at $250/300 over LME cash, he added.
But some analysts have recently been striking a note of caution, saying demand is softening and supplies are starting to increase, while the U.S. economy is slowing down.
One trader said fundamentals were shifting, with plentiful quantities of scrap around. He said the Inco labour settlement had been a pivotal moment for the market.
"Since then we have had an unwinding of the technical situation....and a dead-cat bounce...The best you can hope for now is a Falconbridge strike," he said.
Major Canadian producer Falconbridge's labour contract at its Sudbury operation expires on August 1.
(C) Reuters Limited 2000.
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