Nickel: Crash after the boom

Nickel has confirmed its reputation for being the most volatile of the LMEmetals this year, with a spectacular rally being followed by an equallyspectacular crash (Fig 1). The extremes of the price reflect the interaction offunds and fundamentals. While it seems fair to assess that fund buying andfund selling have driven prices to their extremes (moving from net long in midyearto net short recently), leading to some overshoot, the fundamentals havealso been an important driver.

    With mid-year demand euphoria giving way to short-term gloom, extremedestocking is now prevalent all the way from nickel ore to stainless steel. Theold dictum still holds true, however, that you can only destock once, and wesuspect that once prices are perceived to have bottomed, there could beanother rush to buy.