After an impressive run, exchange traded notes that track the price of nickel have swiftly done a one-eighty, plummeting on the higher-than-expected exchange-tracked inventory levels and speculation that the rally may have been overdone.
Since the May 13 high, the iPath Dow Jones-UBS Nickel Total Return Sub-Index ETN (NYSEArca: JJN) has declined 14.0% and the iPath Pure Beta Nickel ETN (NYSEArca: NINI) plunged 17.3%. JJN was falling Thursday on heavy trading, with volumes rising to 67,000 compared to the average 8,300, according to Morningstar data.
Nickel for delivery in three months declined 6.4% to settle at $18,750 per metric ton Thursday, the largest fall since September 2011, Bloomberg reports. In comparison, nickel traded at a 27-month high of $21,000 on May 13.
The industrial metal has been outperforming this year as nickel prices jumped 56% since an export ban in Indonesia, the world’s top supplier of the metal from mines, and on the threat of sanctions against Russia, the home-country of Nrilsk Nickel, the largest producer of refined metal. JJN has increased 42.1% and NINI is up 38.9% year-to-date. [Ukraine Crisis Drives Cash to Gold, Nickel ETFs]
The plunge “illustrates the extent to which speculation was apparently responsible for driving up the nickel price,” Daniel Briesemann, an analyst at Commerzbank AG, said in the article. “The correction process could well continue for the time being.”
Nickel prices weakened after stockpiles tracked by the London Metal Exchange showed a 6.4% increase in 2014, allaying fears that the Indonesian export ban drained global supply.
The Goldman Sachs Group warns that nickel can continue to fall on expanded capacity for smelting and reduced purchases from steelmakers, according to Bloomberg. Specifically, Goldman pointed to China “aggressively” building blast-furnace capacity to produce nickel pig iron while waning demand from stainless steel makers poses another “downside risk.”