get set for the next legup

02/14/2007 09:09:55 AM EST
DowJones

London, Feb 14, 2007 (Dow Jones Commodities News via Comtex) --By Lisa Yuriko Thomas

Of DOW JONES NEWSWIRES

The market will continue to keep a close watch on nickel stock movements in determining future price direction, said traders, as critically low inventories and signs of further tightening in the near-term boosted London Metal Exchange nickel prices to an over one-week high Wednesday.

Three-month nickel pushed to an over one-week high of $37,800 a metric ton Wednesday, up roughly 5% from Tuesday. Nickel prices have jumped roughly 16% since the beginning of the year while other metals such as copper and zinc have seen double-digit percentage declines.

Although nickel stocks have increased roughly 30% from levels one week ago, nevertheless, they remain at critically low levels.

Canceled warrants - or material accounted for and to be drawn down at a later date - soared to 54% Wednesday from Tuesday's 15%, leaving just 1,806 tons available to the market. This comprises less than half a day's worth of global nickel consumption.

A 1,374 ton fall in free nickel stocks to only 1,806 tons encouraged a quick move higher in nickel prices immediately after the information was released, said John Reade of UBS.

The large hike in canceled warrants in Busan and Singapore is largely Russian material and reflects market difficulties in sourcing material, a broker said.

As a result of the market tightness, physical premiums have recently touched record highs, said Michael Widmer of Calyon in London.

An owner of metal in LME warehouses holds a warrant, and some traders suggest that nickel warrants are tightly held by one particular market participant. This means that the player can move its metal on and off warrant in warehouses and have some control over nickel stocks - and prices - as a result.

In looking forward, some analysts expect the market tightness to abate due to an increase in nickel stocks and the potential for accelerated substitution.

Commonwealth Bank of Australia said recently that global nickel prices will fall from current "supercharged levels" in 2007 although prices will remain at a structurally high level by historical standards.

Immediate supply issues are adding a significant premium to price and "if/when the stock tightness abates, the existing pricing premium should also unwind," CBA noted.

"More importantly, a $30,000/ton nickel price will accelerate the substitution pressures facing nickel's use by the stainless industry," Natexis Commodity Markets said in a recent report.

"Chinese stainless steel producers argue that nickel now accounts for more than 85% of their productions costs against 60% in early 2006," according to Fortis Bank in a research report Tuesday. "The risk for nickel is (Chinese stainless steel producers) will turn increasingly to carbon rather than stainless steel, and also switch to producing lower-grade 400 and 200 stainless," Fortis Bank added.

-By Lisa Yuriko Thomas, Dow Jones Newswires; +44 (0)20 7842 9410; [email protected]

(END) Dow Jones Newswires

02-14-07 0909ET

Ultimately when PON does retrace to a "sustainable" level, MCR will be pumping out 20,000+t/year plus no longer be a pureplay and ostensibly could be a $4.50 proposition....IMHO