The price of nickel on Wednesday surged to another record high in volatile trading, taking its rise over the last month to more than 50 per cent.
The new peak came on a day that copper prices rose back above $8,000 a tonne, and gold climbed above $650 a troy ounce to a five-week high.
The benchmark three-month nickel price peaked at $26,600 a tonne on the London Metal Exchange. Some investors thought it had gone high enough and started selling late in the session, leaving the price at $25,300 in late London trade, down $200 on the session. The metal has risen about 90 per cent so far this year.
Nickel inventories at LME registered warehouses dropped a further 174 tonnes to 8,244 tonnes, the lowest level since August 2005. This compares with about 30,000 tonnes at the start of the year.
The amount available to users of the metal is actually smaller with about 50 per cent of the nickel in LME warehouses already earmarked for consumers.
Jon Bergtheil, metals strategist at JP Morgan, said nickel prices have been driven by stronger stainless steel production, which prompted many producers to re-stock their own nickel inventories earlier this year.
Mr Bergtheil said in the past month stainless steel producers have been de-stocking their own inventories as they continue to produce more steel.
“The nickel market is going to remain tight for some time, but looking further out, these prices will trigger a lot of new production,” Mr Bergtheil said.
The International Stainless Steel Forum, an industry body, said stainless steel production has recovered sharply this year and, as a result, mills have moved to restock nickel. Stainless steel accounts for 70 per cent of nickel consumption.
It said global production of stainless steel was 6.60m tonnes in the first quarter of this year, a new record quarterly high.
Mr Bergtheil said while demand for nickel had increased, supply of the metal had been disrupted with several Indonesian nickel producers reducing output in the past month because of technical problems.
The high prices are too much for some stainless steel producers. Robin Bhar, a metals strategist at UBS, said a number of Chinese stainless steel producers have announced plans to cut output by 20 per cent for a month because of high nickel prices.
Traders said investors were also using the nickel market to arbitrage their exposure to Inco and Falconbridge, the two Canadian nickel miners that are subject to takeover bids.