Nickel Rises to Eight-Month High on Strengthening China Demand

January 18, 2011, 7:48 AM EST

http://www.businessweek.com/news/2011-01-18/nickel-rises-to-eight-month-high-on-strengthening-china-demand.html

Jan. 18 (Bloomberg) -- Nickel rose to an eight-month high in London as a report showed stronger demand for the metal in China. Copper climbed as Rio Tinto Group said production fell.

Nickel usage in China gained 20 percent from a year earlier to 45,000 metric tons in November, the International Nickel Study Group said in a report yesterday. Demand increased 3.4 percent from October, it said. Global usage of nickel, used to protect stainless steel against corrosion, climbed 12 percent from the prior year, it said.

“Chinese demand was strong, and this accords with anecdotes in the new year that stainless-steel producers are busily restocking and filling 2011 hedging mandates,” said David Thurtell, an analyst at Citigroup Inc. in London.

Nickel for delivery in three months climbed $580, or 2.2 percent, to $26,415 a ton at 12:30 p.m. on the London Metal Exchange. Prices reached $26,550, the highest intraday level since April 27. Nickel is up 6.7 percent this year, leading advances among the six main metals traded on the exchange.

Demand for nickel will rise as much as 7 percent in the first quarter from the prior three months to a record 390,000 tons on steelmaker usage, VTB Capital analyst Wiktor Bielski said in a report today. Supply will run short of demand by between 15,000 and 20,000 tons in the period, and prices may reach $27,500 a ton in the next few weeks, he said.

Fund Interest

“The combination of improving fundamentals (leading to a significant market deficit in 1Q11), coupled with potentially stronger fund interest and the positive effect of new nickel ETFs, has recharged the outlook for nickel prices, in our view,” Bielski said.

ETF Securities Ltd. last month introduced the world’s first exchange-traded product backed by nickel. Short-covering, or purchases of metal to close out bets on lower prices, also contributed to gains today, Standard Bank Plc said in an e- mailed report.

Stockpiles of nickel tracked by the LME dropped 414 tons to 137,352 tons today, daily exchange figures showed, after shrinking by 14 percent in 2010. Canceled warrants, or orders to draw metal from LME inventories, jumped 35 percent to 7,680 tons after yesterday’s 40 percent surge.

Copper added $90, or 0.9 percent, to $9,720 a ton on the LME. The metal for March delivery rose 1.3 percent to $4.44 a pound on the Comex in New York. Prices will likely average $4.45 in 2011, up 24 percent from an earlier estimate, Morgan Stanley said.

Rio’s Output

Production of mined copper declined 16 percent last year from 2009 after a 9 percent slide in the fourth quarter, Rio, the world’s third-biggest mining company, said today. Lower ore grades affected output, Rio said.

Prices also gained as the Shanghai Composite Index of Chinese equities rebounded from the biggest drop in two months. The MSCI World Index of shares rose as much as 0.7 percent.

“LME metals seem higher on the rebound in the Shanghai Composite overnight,” Thurtell said.

Metals also rose as the U.S. Dollar Index, a six-currency gauge of the greenback’s strength, declined as much as 0.8 percent. A slumping dollar makes metals priced in the currency cheaper in terms of other monies and spurs demand for raw materials as an alternative investment.

Aluminum for three-month delivery on the LME advanced 1.4 percent to $2,469.25 a ton. Global demand may swell by 8 percent this year, said United Co. Rusal, the world’s biggest producer. Consumption in China will likely gain 12 percent, Deputy Chief Executive Officer Oleg Mukhamedshin said.

Zinc added 0.2 percent to $2,459 a ton, tin rose 0.6 percent to $27,100 a ton and lead gained 0.7 percent to $2,658.50 a ton.

--With assistance from Jae Hur and Ichiro Suzuki in Tokyo and John Duce in Hong Kong. Editors: Dan Weeks, John Deane.

To contact the reporter on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter@bloomberg.net.