Nickel hits new record high, aluminium easier

Nickel hit a new record high of $35,700 a tonne on Wednesday as supply jitters resurfaced, while aluminium softened despite market fears of a potential squeeze, analysts said.

Aluminium for three-month delivery on the London Metal Exchange eased to $2,678 a tonne from Tuesday’s $2,681 close, while nickel ended up more than 5 percent at $35,500 from $33,600.

Low stocks and supply disruptions had led many analysts to expect a surge in nickel prices this year.

Available stocks of nickel, used to make stainless steel, in LME warehouses at around 4,400 tonnes are little more than one day’s consumption. They have fallen from around 37,000 tonnes at the beginning of last year.
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“There’s a whole lot of uncertainty in the nickel market. It’s a small market, demand is healthy and there is not enough supply coming through,” said Michael Widmer, analyst at Calyon.

“I would expect stainless steel production to come off a little bit, we are still probably looking at 7.5 percent production growth in 2007.”

The latest supply threat came from Xstrata . Wage talks between the London-listed miner and the union representing workers at its big nickel operations in Sudbury, Ontario, have stalled, according to the union.

The current contract expires on Jan. 31.

Other examples of supply delays include London-listed miner BHP Billiton , which last November said production at its Ravensthorpe nickel mine in Australia would be delayed until the first quarter of 2008.

Earlier in January, the Indonesia unit of Canadian nickel producer Inco Ltd. said it had cut weekly output by around 130 tonnes (300,000 pounds) as dry weather had caused low reservoir levels at its hydro-electric power plant.

PLAYS OUT

The aluminium market has been supported by a large position holding some 90 percent of available material. Traders for most of the day have been looking for clues to the extent of the potential squeeze.

“At the moment we are still waiting to see how this plays out … the interesting thing is to see where the nearby spreads are trading,” John Kemp, analyst at Sempra Metals, said.

The LME’s compliance team had observed the session and concluded that trading was orderly.

The potential squeeze had caused the nearby spreads or backwardation — the premium of cash metal over the three-months price — to hit $120 on Monday, up from $30 at the start of 2006 and the highest since 1990. [ID:nL16610192]

On Wednesday the backwardation eased to around $95/105.

LME aluminium stocks rose on Tuesday to 701,400 tonnes and on Wednesday they were up by 12,625 tonnes to 714,025.

Analysts had been expecting around 50,000 tonnes or more, so the very small inflow of stocks into LME warehouses suggested that positions had been rolled forward.

Workers at Guinea’s CBG bauxite company halted output of its main mineral export in support of a general strike.

The country is the world’s biggest shipper of the ore from which aluminium is extracted.[ID:nL17764951]

Copper slipped as stocks in London Metal Exchange warehouses rose 2,225 tonnes to 199,125 from little more than 25,000 tonnes in July 2005.

LME copper for three-month delivery ended at $5,650 a tonne, down from Tuesday’s $5,715 close.

Copper has lost about 10 percent so far this year and more than 30 percent since hitting a record high of $8,800 a tonne last May on worries about economic slowdown in the United States, falling demand and rising stocks.

At the New York Mercantile Exchange’s COMEX division, copper for March delivery ended 0.80 cent easier at $2.5695 a lb, after dealing in a tight range between $2.5205 and $2.5770.

James Quinn, commodity commentator with A.G. Edwards, believed $2.50 (basis March copper) would be a key pivot-point for the market.

Zinc ended at $3,615 versus $3,720 on Tuesday, lead lost $25.5 to $1,559.5 and tin added $325 to $10,950.

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