Nickel Loses Momentum after April Rally

BEIJING, May 6 -- Nickel may lose its steam after a rally in April as China's latest monetary measure to cool the economy and crack down on sizzling property market could slash demand for the metal.

The spot nickel price in Shanghai was down 6,250 yuan ($915), quoted between 180,000 yuan and 181,500 yuan on Wednesday, pulled down by the sharp decline in the metal overnight on the London Metals Exchange (LME).

LME nickel dipped more than 1 percent to an almost one-month low of $24,350 per ton on Tuesday.

The base metal has risen almost 15 percent in April on the back of falling stockpiles and increased output of stainless steel, becoming the best performer among commodities.

"The market needs corrections after persistent big gains made earlier this year," said Liu Minda, a non-ferrous analyst at Huatai Securities, adding that China's policy tightening, which will cut demand for nickel, may weigh on the base metal's price.

The central government hiked the bank reserve requirement ratio by 50 basis points on Sunday, the third such increase this year, indicating the country's intention to cool the overheating economy.

China's gross domestic product (GDP) increased 11.9 percent in the first quarter, the highest growth rate in three years, surpassing most economists' estimates. The country's GDP growth in 2009 was 10.7 percent.

Recent moves to curb the realty market will also weaken demand for nickel-based stainless steel, analysts said.

Jinchuan Group Ltd, the largest producer of nickel in China, cut its factory price by 10,000 yuan to 185,000 yuan per ton on Wednesday.

China was one of the largest consumers of nickel in 2008, accounting for one-fifth of the total global consumption of 1 million tons.

In addition, nickel pig iron, which can replace the traditional electrolytic nickel in stainless steel, will drag down the price of the metal further as the substitute may cause a supply glut.

"The exploitation of nickel pig iron will quickly increase stainless steel output, which may cause a possible imbalance between supply and demand," said Zhu Lida, a non-ferrous metal analyst from Northeast Securities based in Shanghai.

Reserves of nickel pig iron across the world are "exponential higher" than those of electrolytic nickel, Zhu said.

The analyst added that as nickel sulphide ore resources have been greatly depleted, nickel pig iron is becoming more attractive to miners.

Meanwhile, the huge profits from mining may also attract major global players to explore the metal further.

"The selling price for the product is about twice the cost price for miners, which is rather attractive," said Huatai's Liu.

According to CRU, the world's leading consultancy group for metals and mining, global nickel output will grow 4 percent to 1.37 million tons in 2010.

The metal has entered into a downward trajectory, but the extent of the fall will largely depend on demand in China, analysts said.

Jilin Jien Nickel Industry Co, one of the country's largest producers of the metal, was down 2.23 percent to close at 24.97 yuan on Wednesday.