(Yicai Global) Dec. 4 -- Nickel prices on the Shanghai Futures Exchange dropped almost 30 percent in the fourth quarter, as supply concerns ebb and demand softens. Unless demand picks up, there is little room for prices to rebound, according to industry insiders.

The main February contract closed at CNY108,240 (USD15,316.70) per ton yesterday, down 27.3 percent from a peak of CNY148,550 in September.

The base metal posted strong gains in the first three quarters largely due to two factors which are now in doubt. One was a concern over supply when Indonesia, the world's largest nickel miner, said in September that it was to impose an export ban on the ore from next January to protect its resource base.

Prices soared, reaching a high of CNY148,550 (USD21,000) per ton on Sept. 3 on the SFE, up 70 percent from CNY86,710 on Jan. 3.

But the European Union lodged a complaint with the World Trade Organization, claiming the Southeast Asian country aimed to protect its own smelting and stainless steel industries. If the EU's appeal is successful, the world is likely face a nickel glut next year and that will weigh on prices, said Yin Xin, an analyst at Guosen Futures.

Weakening demand from China's stainless steel industry is also another big concern. Overproduction in the first three quarters has led to record-high stock overhang. Major domestic steel mills have cut production and many of them have lowered their ex-factory prices, said Che Hongyun, an analyst at SDIC Essence Futures. The industry faces destocking pressure at the end of the year.

Some 84.7 percent of nickel produced is used to make stainless steel and China is the world's biggest buyer of nickel ore. Domestic demand for stainless steel drives the country's nickel needs.

If demand does not recover, nickel prices can be expected to fluctuate wildly next year, said Wang Jun, director of the Founder Institute for Medium-Term Futures.