nickel advances
Nickel Advances for Second Day in London as Stockpiles Dwindle
By Brett Foley and Chanyaporn Chanjaroen
Jan. 11 (Bloomberg) -- Nickel rose in London, posting the biggest two-day gain in more than five years, on speculation stockpiles won't be sufficient to meet demand.
Inventories tracked by the London Metal Exchange have fallen 82 percent in the past 12 months. Eramet SA, operator of the world's largest ferronickel plant, said today it reduced sales to customers and used inventories to cope with a three- month-old strike that has cut production by almost a third.
``Nickel is among the tightest of the metals due to the relatively low stockpiles,'' said John Kemp, a London-based analyst at Sempra Metals Ltd., one of 11 companies trading on the floor of the LME.
Nickel for delivery in three months on the LME increased $2,100, or 6.5 percent, to $34,600 a metric ton as of 5:05 p.m. London time. The metal, used in stainless steel, has gained 15 percent in the past two days, the biggest increase since November 2001. Nickel more than doubled last year and traded at a record $34,950 on Dec. 15.
LME nickel stockpiles dropped 156 tons to 6,300 tons, their third consecutive daily decline, the exchange said in a daily report. That's equal to less than two days of global consumption.
Prices may be supported by supply disruptions, rising costs and increasing stainless steel production. Stainless-steel output rose 14 percent last year to 27.8 million tons, according to industry consulting company MEPS (International) Ltd.
Striking Workers
A labor protest on the French-controlled Pacific island of New Caledonia has reduced Eramet's production by 50 metric tons a day, or 27 percent of its 185-ton daily rate, since Sept. 25. Philippe Joly, a spokesman for Paris-based Eramet, said he doesn't know when there will be an end to the island-wide strike, which is also affecting other miners on New Caledonia.
Cia. Vale do Rio Doce, which acquired Inco Ltd. last year, has lost output at its Indonesian unit. PT International Nickel Indonesia, the country's largest producer of the metal, said on Jan. 4 that weekly output of so-called nickel-in-matte was 130 tons less than normal due to a shortage of hydropower. Nickel- in-matte is a raw material used by refineries.
The rising cost of establishing new nickel projects may also inhibit new sources of supply, according to Sempra's Kemp.
``Some new projects have been delayed, some new sources of supply are not coming on as quickly as expected,'' Kemp said. ``This will contribute to the tightness in the market.''
New Projects
BHP Billiton Ltd., the world's biggest mining company, said on Nov. 30 that the cost of its Ravensthorpe nickel project increased 64 percent as it paid more for labor and materials. It would take as much as a year longer to develop, delaying supplies, the company said.
Reduced supplies created a shortage of the metal on the LME, boosting prices of nickel for immediate delivery. So-called cash prices traded at $1,500 more than the benchmark three-month contract yesterday, the biggest premium since Oct. 25.
In a well-supplied market, longer-dated contracts are more expensive than contracts with nearby dates, an occurrence known as contango, to reflect storage and interest costs. A reverse situation, known as backwardation, occurs when demand of metal for immediate delivery exceeds supply.
There may be a shortage of aluminum, the most-traded metal on the LME, as cash prices were $77 more than the three-month price yesterday, the highest premium since February 2001.
A group of investors hold long positions, or bets that prices will rise, exceeding 40 percent of total open interest for the contracts to expire this month, LME data as of Jan. 9 show. Open interest means the total of bets on price direction.
Aluminum Bets
The large long positions ``don't necessarily mean a supply squeeze,'' said William Adams, an analyst at London-based metals Web site Basemetals.com. Adams worked for LME member Rudolf Wolff & Co. for 10 years until 2000, when the company was sold to Enron Corp.
The positions probably were built ahead of China's increase in the aluminum exports duty to 15 percent in November, Adams said. Some investors speculated the country, the largest producer and consumer of aluminum, will reduce supplies in the global market, thus boosting prices.
Aluminum for delivery in three months gained $65 to $2,775 a ton, while zinc increased $105 to $3,845 and tin rose $125 to $10,575.
Copper fell $22, or 0.4 percent, to $5,901 a ton, reversing two days of gains.
Stockpiles of copper tracked by the LME rose for a second day, gaining 1,625 tons to 195,450 tons.
To contact the reporter on this story: Brett Foley in London at [email protected] ; Chanyaporn Chanjaroen in London at [email protected] .
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