Nickel prices climb 6%

ANNA STABLUM

Thursday, June 12, 2008

LONDON — London nickel futures surged 6 per cent after a plant in Australia said it would shut for repairs, but copper fell around 1 per cent on concerns over easing demand and rising inventories, analysts said.

London Metal Exchange nickel hit $24,585 (U.S.) a tonne, its highest level since May 22 before trading at $23,800/23,900 by 0916 GMT, up from $23,200 on Wednesday.

“The market is going to be in deficit this year rather than a surplus,” said analyst Daniel Smith at Standard Chartered.

“Prices are going to head towards $26,000 a tonne.”

Copper shed almost 1 per cent or $65 to $7,855/7,865 with sentiment dampened by persistent worries about falling demand from top consuming countries China and the United States.

Stocks of copper in LME warehouses at around 121,000 tonnes are about 10 per cent higher then the levels seen in early May.

“Demand is still soft in China, imports of copper were down,” Mr. Smith said, referring to Chinese data showing lower imports of copper in May.

A firmer U.S. dollar weighed on sentiment making dollar-priced metals more expensive for other currency holders.

“A stronger dollar is putting a lot of these markets under pressure,” Standard Chartered's Mr. Smith said.

The dollar inched up against the euro, underpinned by the Federal Reserve's array of tough talk this week about containing inflation that has spurred expectations for higher interest rates.

Traders were awaiting economic data later in the session with U.S. jobless claims and retail sales due at 1230 GMT for further clues about the health of the U.S. economy.

Nickel prices jumped after global miner BHP Billiton said it would close a 100,000 tonne-per-year nickel operation for four months for repairs.

BHP estimated the shutdown of the operations in Western Australia would reduce its nickel sales by 28,000 tonnes, cutting world nickel supplies by almost 2 per cent.

“It is literally wiping out most of the surplus for this year,” analyst Max Layton at Macquarie Bank said.

The shutdown comes after a gas explosion in Western Australia forced miners Minara Resources Ltd. and Newcrest Mining Ltd. to cut their full-year production forecasts earlier this week.

“But it will have to be put in context – stainless steel demand is quite poor and LME stocks are at 9 year highs,” Mr. Smith said, adding the supply disruptions were bullish short-term.

Nickel prices have seen a steep decline in 2008, down more than 10 per cent from the start of year as stainless steel makers, which consume around two-thirds of the world's nickel, scaled back purchases in light of slowing demand for their products.

Aluminum eased $5 at $2,955/2,965 a tonne.

Energy shortfalls continued to haunt the aluminum market after difficulties with supplies in various parts of the world.

Electricity-hungry aluminum smelters and nickel pig iron mills in Shandong province may consider reducing output after the provincial government raised power prices, analysts said.

The rising costs could cut into profits of producers including a unit of Aluminum Corp of China Ltd. (Chalco), the country's top aluminum group.

Lead was down $20 at $1,890/1,900 per tonne, zinc shed $5 to $1,915/1,925, while tin gained $100 to $21,600/21,800.

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