Nickel soars to 14-year high

The price of nickel, used primarily to make stainless-steel, rose sharply on Monday on the London Metal Exchange (LME) to its highest since May 1989 as a strong uptrend showed no signs of abating, dealers were quoted by Reuters.

On the LME, the world's largest non-ferrous metals exchange, three months (MNI3) nickel traded at $13,020 a tonne, up $220 from Friday's closing levels.

"I expect nickel to continue to firm as long as we don't see any major sellers coming to the market. We are seeing good physical demand, especially from China," one LME floor trader said.

Over the past month prices have risen by some $1,000, while the gain since mid-year, when the bull-market gathered pace, has been nearly $5,000.

"It's been quite active and it looks like we'll see some follow-through this afternoon," another trader said.

Traders said Monday's strong advance was the latest upturn in a bull market based on strong fundamentals.

Nickel's main end-use, some two-thirds of consumption, is in stainless-steel, and this sector is currently strong.

Also, crucial labour talks are in progress at Canada's Falconbridge, the world's third largest nickel producer.

Crucial labour talks at nickel giant Falconbridge Ltd's Sudbury, Ontario, operation will start up again later on Monday after the two sides considered their opening proposals last week.

Falconbridge 's Sudbury accounts for nearly five percent of the world's nickel. The current agreement expires at the end of January.

Rick Grylls, president of local 598 of the Canadian Auto Workers Union, said non-monetary issues such as language used in the 130-page contract would be discussed first.

Thornier matters such as wages and pensions for the 1,080 unionised workers at the mine, milling and smelting complex are likely to be broached only in the new year, he said.

The LME market's contango is narrowing. A contango is the normal situation where forward metal is dearer than nearby to take into consideration rental and financing costs.

This is taking place even though warehouse inventories are relatively high. LME stocks currently stand at 34,014 tonnes, not far off levels reached in September, when they ballooned to 36,000 tonnes, a 2-3/4 year peak, as a fierce backwardation sucked in metal.

Stocks have risen from March's 18-month lows of 13,260 tonnes partly because of the tightness but also due to metal being de-collateralised and warranted by Russian producer Norilsk Nickel in late summer.

The LME itself monitored the tightness that raged in mid-September, but this was said by traders to be a coincidental squeeze.

Cash/threes currently stands at a small $10 contango, but prices from February 2004 show backwardations, and this period of tightness takes place at a time when any Falconbridge strike would start.

Also, much of the LME's stockpile may well be tied up in long-term deals and not readily available, which will further underpin the market, traders said.

"We are in a bull trend. It's just a matter of sitting tight during the dips and enjoying the ride," one said.(*)