Supply angst pushes nickel to new record high

Nickel prices hit a new record high on Wednesday as worries about low stocks and supply disruptions intensified, while copper and aluminium prices firmed, analysts said.

Nickel for delivery in three months on the London Metal Exchange touched $36,040 a tonne, a rise of more than 20 percent since the seven-week low of $30,000 seen on January 9.

By 1120 GMT it was at $35,750/35,950, up from Wednesday’s close at $35,500.

The latest surge in prices came after workers at London-listed Xstrata’s nickel operations in Sudbury Ontario gave union leaders a strike mandate.

Workers at Sudbury, which produces around 60,000 tonnes of nickel a year, have a history of taking strike action over pay. The current contract expires on Jan. 31. [ID:nN15237771]

“Nickel’s record high this morning puts it … in the realms of precious metal pricing,” said John Meyer, analyst at Numis Securities.
ADVERTISEMENT

“It would appear that the market is keen to push up nickel prices at the moment, and the possible strike at Sudbury provides a good reason to do so.”

Other supply problems included delays and cost over-runs at projects in Australia and New Caledonia. About two-thirds of world nickel output is used to make stainless steel, which some expect to grow at around 7.5 percent this year..

Available, or on warrant, stocks of nickel in LME warehouses at around 4,500 tonnes are little more than one day’s global consumption. They have fallen from around 37,000 tonnes at the beginning of last year.

“The supply side is still exceptionally tight and, because its structural tightness, no matter how high prices go, supply doesn’t really increase that much,” said Neil Buxton, analyst at GFMS Consulting.

“There just isn’t the capacity, any weakness in the nickel market has to come about on the demand side.”

SQUEEZE

Copper rose to $5,710/5,730 a tonne, against $5,650 the previous day, buoyed by bullish sentiment in the nickel market and stocks, which fell 875 tonnes to 198,250 tonnes.

“There’s a sense that copper selling has been overdone and that a period of consolidation is ahead of us,” a trader said.

Copper, used in the construction and power industries, has lost about 10 percent so far this year and more than 30 percent since hitting a record high of $8,800 in May.

The sell-off had been prompted by signs of falling demand.

Aluminium was at $2,705/2,710 a tonne, against Wednesday’s close of $2,678. The market has in recent days been supported by a large position holding some 90 percent of available material.

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.

On Thursday the backwardation was at $108/110.

LME aluminium stocks rose 9,025 tonnes on Thursday to 723,050 tonnes.

“I’m surprised that we are not seeing more metal flowing in at the moment given the level of backwardation,” said John Kemp, analyst at Sempra Metals. “We would have expected 50,000 to 100,000 tonnes delivered over the course of a day or two.”

Kemp saw the focus switching to aluminium options, where the number of outstanding contracts to buy aluminium at $3,100 a tonne in February hah risen to more than 8,000, or 200,000 tonnes, from less than 200 contracts in the middle of December. [ID:nL17206081]

Traders expect that holding to rise and expect volatility, possibly even a price surge between now and February 7, when the owner has to decide whether to exercise the options.

Zinc gained to $3,667/3,687 from $3,615 on Wednesday, tin was higher at $11,100/11,300 against $10,950 and lead was firmer at $1,570/1,590 versus $1,559.5.

Copyright © 2005 Reuters Limited. All rights reserved.