Nickel finally appears to have lost some of its lustre. The...

Nickel finally appears to have lost some of its lustre.

The price of the stainless steel ingredient has fallen 19 per cent since reaching a record high of $US51,600 a tonne on May 4. On Wednesday, it dipped below $US40,000 a tonne for the first time since March. By overnight Friday, it had recovered to finish at $US42,200.

Nickel producers have begun to retreat from some of their recent share price gains as a result of the commodity price fall.

On Friday, Goldman Sachs JBWere analysts issued a note pondering “not if, but when do you sell nickel stocks?” given it was their least preferred commodity.

This year, the nickel price reached more than 10 times its 2001 level due to a global supply shortage spurred by delays and cost blowouts at laterite projects under construction. At one point, supply stocks on the London Metal Exchange were measured in hours rather than days.

But as a result of the commodity’s high price, stainless steel manufacturers have begun to lower the amount of nickel in some of their products. China has rapidly increased the production of nickel pig iron made from imported lowgrade laterite ores from the Philippines. The pig iron option becomes economic once nickel costs more than $US10.50 a pound.

Goldman Sachs JBWere said it expected nickel prices to fall further and put long-term sell recommendations on the nickel stocks it covers, including Minara Resources, Jubilee Mines, Independence Group and Western Areas.

But Clive Donner, head of listed resources investment fund LinQ Capital, said he thought nickel was still a good commodity in which to invest.

He said only extremely marginal producers would be affected by recent price falls, and LinQ intended to hang on to its investment in Independence.

Goldman Sachs JBWere noted there were risks to its sell call. It said Jubilee was likely to continue to have positive exploration results and possible takeover appeal. Last week, Citigroup also noted Jubilee’s potential strategic value to suitors such as BHP Billiton.

BHP Billiton did not enter the recent bidding war over Australia’s third-biggest nickel producer, Canada’s LionOre. But it’s believed the mining giant wants to hold talks with the victor, Russia’s Norilsk Nickel, about the future of Lion-Ore’s WA assets.