After climbing to a more than two-year high in January, nickel has lost over than 2 percent since the start of the month. On Wednesday, LME nickel closed the day down 1.6 percent, at $13,175 per tonne.
“The metals reacted by basically following the global equity markets and also trying to focus in on which strike price level they will settle at for today’s declarations,” Kingdom Futures CEO Malcolm Freeman wrote in a note.
Traders of LME calls and puts, the right to buy or sell a contract at a fixed price later, have to decide whether to exercise their options on the first Wednesday of each month.
Meanwhile, a stronger US dollar also put pressure on nickel prices, as a higher greenback makes commodities priced in dollars more expensive for investors using other currencies.
“Aside from the strengthening dollar, we think concerns about China’s weak demand [have] also weighed on the nickel price,” said broker Argonaut Securities in a report.
Some of China’s stainless steel mills, which are major consumers of nickel, are losing money at current prices and have already wound down operations ahead of the week-long Chinese Lunar New Year, the broker added. “We expect to see price weakness in nickel going forward,” it said.
Similarly, FocusEconomics analysts also forecast that nickel prices will pull back from current levels as a possible increase in supply could put pressure on prices.
Higher output from top nickel-producing countries is expected this year. Indonesia has increased its export permit allowance, and the mining commission in the Philippines could lift a ban on open-pit mining.
That said, nickel prices are still up almost 7 percent year-to-date, and some analysts believe they might be on track for further gains.
“The fundamental story for nickel has started off well and it is looking good for at least the next couple of years,” Wood Mackenzie analyst Adrian Gardner said.
Firms recently polled by FocusEconomics estimate that the average nickel price will be $11,384 in Q1 of this year. The most bullish forecast for the quarter comes from Itau BBA, which is calling for a price of $12,564; meanwhile, Standard Chartered (LSE:STAN) is the most bearish with a forecast of $9,800.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.