London nickel flirts with record on firm demand

Tuesday, August 15th 2006

Nickel closed within $200 of its recent record high on Monday, supported by demand from stainless steel makers who may have underestimated their needs for 2006.

Nickel for delivery in three months closed at $27,100 a tonne on the London Metal Exchange (LME) falling back after hitting $27,250, only $50 away from last week’s record high.

On Friday, nickel closed at $26,700.

“There is a genuine shortage of material and in this environment prices are likely to go higher,” Bache Financial minerals strategist Angus MacMillan said,

He added that $30,000 was the obvious big number target.

“I wouldn’t be surprised to see it there in the very near future.”

South Korean steel producer POSCO Co. Ltd. on Monday dismissed a Wall Street Journal report that it held a loss-making short position of 10,000 tonnes of nickel on the LME and of an additional 20,000 tonnes in the physical market.

A POSCO official said the company was short by less than 1,000 tonnes on the LME, and denied the company had speculated on falling nickel prices [ID:nSEO160856]. Stainless steel production accounts for around two thirds of world nickel use.

“Regarding the 1,000-tonne short position on the LME, if they have to buy it back, then we might see a little more covering and firmer prices,” a physical nickel trader said.

“They haven’t taken on a physical short position, but they may not have covered their needs fully for this year,”

He said that most stainless steel makers had covered around 80 percent of their predicted 2006 nickel needs on long term contracts, but demand for stainless had picked and with it, nickel.

“…The sort of tonnage referred to may be what they need in order to fulfil orders,” he said, and the company had two options — to try and buy the additional nickel needed or to turn away orders.

Stocks of nickel in LME warehouses were 5,940 tonnes, of which nearly 3,600 tonnes have already been earmarked for delivery. Daily world nickel consumption is around 3,500 tonnes.

In addition to low stocks and strong demand, nickel prices are firm after a strike at Inco , which began shutting down production at the end of July at its 54,000 tonne-per-year, Voisey’s Bay nickel mine in Canada.

COPPER SUPPORTED BY STRIKE

Copper edged higher ahead of the close on tightening supply in the biggest consumer of the metal and as a strike at the world’s largest copper mine moved into a second week.

Copper ended up $90 at $7,660 as talks resumed at the key Escondida mine in Chile between the union and majority owner BHP Billiton

In China, which consumes a fifth of the world’s copper, recent sales of metal by Beijing’s State Reserves Bureau had been weighing on futures prices in Shanghai and London, sharply reducing the country’s imports and encouraging exports.

But that selling programme may now be reaching its conclusion.

“The SRB was looking to sell 100,000 tonnes of copper this year. They look to have sold 60,000 to 80,000 tonnes. Those sales have depressed the local market to the point where it was not worthwhile importing copper,” Bhar said.

“But as those sales dry up, local prices could pick up again and encourage more Chinese imports,” he added.

Aluminium closed down $40 at $2,480 and looked vulnerable to technically-driven selling, while zinc closed flat at $3,260.

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