Industrial metals, led by copper and nickel, experienced a significant pullback from recent record highs as traders moved to secure profits following a dramatic price surge. Futures for key metals on the London Metal Exchange (LME) closed more than 2% lower, marking a pause in a powerful bull run that had captivated the market.
A Broad-Based Retreat Across the Board
The sell-off was widespread. Copper futures dropped 2.6% to close at $12,899.50 a ton, while nickel saw an even steeper decline of 3.4%, settling at $17,895 a ton. Zinc also joined the downward move. Analysts pointed to the sheer speed of the recent rally as the primary trigger for the correction. Ed Meir, an analyst at Marex, noted in a statement that such a broad retreat is typical following oversized price moves, with analysts struggling to keep pace with the volatility.
The context for this pullback is a market that had been on fire. Copper, for instance, had rallied over 40% in the previous year, its strongest performance since 2009. This surge was driven by supply disruptions at major mines and strategic stockpiling ahead of potential US tariffs. Nickel's ascent was even more explosive toward the end of the year, with a single-day intraday surge of up to 10.5% recorded recently.
The Nickel Rollercoaster: Financial Flows vs. Fundamentals
The nickel market presented a classic tale of conflicting forces. On one hand, prices were propelled to a fresh 19-month high this week by a potent mix of supply concerns and financial speculation. Risks to output in Indonesia, the world's top supplier, provided a fundamental boost. The Indonesian government has plans to reduce production this year and may impose heavy fines on miners violating permits, potentially disrupting supply.
Furthermore, buying activity from China for nickel pig iron was reportedly more active than usual, attributed to industry stocking ahead of the Lunar New Year. However, analyst Fan Jianyuan from Mysteel Global highlighted a critical disconnect. He stated that the rally was largely driven by financial capital inflows, while the underlying nickel market remains in a state of surplus. This surplus was starkly evidenced on Wednesday by LME warehouse stockpiles surging by the most in six years, a clear sign of ample supply.
Long-Term Bullishness Meets Short-Term Caution
Despite the day's sharp declines, the long-term outlook for metals like copper remains broadly positive among many traders and investors, supported by themes like the global energy transition. However, the recent price action serves as a stark reminder of market volatility. The rapid influx of investment, particularly from China's domestic markets, can inflate prices quickly, but profit-taking can trigger equally swift corrections.
The events on the LME underscore a market at a crossroads: bullish long-term fundamentals are clashing with the immediate reality of overextended prices and tangible evidence of oversupply in some segments. Traders are now navigating this tension, balancing optimism for the future with the practical need to manage risk after a historic run-up.
