Base metals — including nickel — fell to multi-year lows on Monday on worries that a surge in the U.S. dollar will deter producers from making supply cuts in a market battling poor demand, especially in top user China.
London nickel slid more than 6 per cent to its lowest since 2003 and copper fell almost 3 per cent to its cheapest in more than six years. Lead touched its lowest since 2010, while aluminum hit the weakest since 2009.
Nickel fell below US$4 a pound on Friday and continued its slide on Monday, falling to $3.754.
Six months ago, nickel was at around $6 a pound. In November 2014, nickel prices were hovering at $8 a pound. Five years ago, the price was in the $13-range at the beginning of the year.
While analysts have told The Star they expect nickel prices to recover, too much supply and weak demand, especially from China, has kept the price low.
Nickel is the key metal mined in Sudbury. While Vale and Glencore have not announced any layoffs locally, smaller mining companies in Sudbury — including KGHM and First Nickel — have already cut back production and reduced their workforces.
The American dollar, meanwhile, hit a seven-month high versus the euro on Monday, making dollar-priced metals costlier for non-U.S. investors, ahead of an expected U.S interest rate hike in December, which could further boost the currency.
Also of concern was the impact of the greenback’s surge on producer output.
“In the context of a market waiting for supply-side cuts, a stronger dollar is only going to weigh on the cost curve and constrain the pace at which cutbacks are made,” said Nicholas Snowdon, analyst at Standard Chartered.
He added that Chinese funds continue to sell metals aggressively on signs of poor demand from downstream sectors that consume metals, and fears that consumption will sag further ahead of the Lunar New Year.
Metals tied to China’s huge steel sector, such as zinc and nickel, have been especially hard hit. China’s apparent crude steel consumption has continued to shrink this year, after falling in 2014 for the first time in more than a decade.
Nickel plunged on Monday despite data showing China’s October imports surged 651 percent year-on-year, with analysts pointing to fears that the metal is going into stockpiles and not being consumed.
Zinc likewise was unable to gain any traction despite China’s October imports rising 189 percent year-on-year, and despite news last Friday that top Chinese smelters agreed to cut output next year by 500,000 tonnes.
“The global zinc market is very likely to show a huge supply deficit next year. Even though the price is clearly not finding support from this in the short term, it should make significant gains in the medium to long term,” said Commerzbank in a note.
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