TOKYO/HONG KONG -- Nickel prices have touched an 11-month low, hit by concerns about oversupply in producing countries coupled with economic warning signs in China, the No. 1 importer.
The benchmark three-month contracts on the London Metal Exchange, owned by Hong Kong Exchanges & Clearing, are down 7% over the last month. On Thursday, the price dropped to $8,840 per ton, the lowest level since June 24 last year.
The latest pressure on the metal came primarily from China. Caixin/Markit on Thursday said the country's factory activity contracted for the first time in 11 months in May. The Manufacturing Purchasing Managers' index, which signals a contraction when it falls below 50, came in at 49.6. The market had expected a reading of 50.1.
The figure sparked worries that "[China's economic] conditions may not have held up as well as previously thought," Capital Economics noted in a report.
This was bad news for nickel, which is used in the production of stainless steel. Globally, stainless steel manufacturers had been increasing their capacity since 2016 to catch up with strong Chinese infrastructure demand, but now the outlook is murky.
"While improved underlying investment demand took over from Chinese supply-side cuts to drive its first quarter commodity import surge," UBS noted, "we think that China's year to date commodity import momentum has likely peaked."
At the same time, investors are worried about oversupply from major nickel-producing countries, including Indonesia. Indonesian state mining company Aneka Tambang, or Antam, on Tuesday announced that it had resumed nickel ore exports to China, following the relaxation of the government's export ban. The market sees the potential for an increase in exports as a risk, weighing on prices.
Nonetheless, the market is still optimistic about the longer-term outlook. Nickel's current price level -- below $9,000 -- means that 50% to 60% of mining companies are making losses. As a result, "more mining companies could curtail production, which would push prices up again," as one Japanese trading company put it.
Nikkei staff writer Mariko Tai in Hong Kong contributed to this story.