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Nickel Heads for Biggest Gain in 2 Years on Deficit Speculation

By Chanyaporn Chanjaroen

March 16 (Bloomberg) -- Nickel rose to a record, heading for the largest weekly gain in more than two years, as investment funds bought the stainless-steel ingredient on speculation shrinking stockpiles will create a supply shortfall.

Inventories tracked by the London Metal Exchange dropped 0.8 percent to 3,564 metric tons, the exchange said today in a daily report. Stockpiles have declined 89 percent in the past 12 months and are equal to less than one day of global consumption.

Funds speculating in nickel are ``the major cause'' of the price surge, Eero Mustala, a spokesman for Outokumpu Oyj, the world's third-largest stainless-steel producer, said today by telephone from Espoo, Finland. About two-thirds of nickel supplies are used to produce the alloy.

Nickel for delivery in three months on the LME jumped $600, or 1.3 percent, to $47,700 a ton as of 9:52 a.m. in London. A close at the level would bring this week's gain to 13 percent, the largest since September 2004. Earlier, the contract traded at $48,500, beating yesterday's record by $610.

Nickel demand will beat supply by 11,000 tons this year, Standard Bank said in a March 7 report.