Nickel Heads for Biggest Weekly Drop Since May as Demand Slumps

By Chanyaporn Chanjaroen

July 25 (Bloomberg) -- Nickel headed for the biggest weekly decline in London since May as stainless-steel mills, the biggest users of the metal, said demand is weakening. Copper and aluminum increased.

Jinchuan Group Co., Asia's biggest nickel producer, cut prices by 11 percent from today. Acerinox SA, the world's largest stainless-steel producer, and Finland's Outukumpu Oyj said this week that orders from construction slowed.

Reports from stainless-steel producers reflect ``weaker demand'' for nickel, Leon Westgate, an analyst at Standard Bank Plc in London, said in an e-mailed report late yesterday.

The contract for delivery in three months fell as much as $325, or 1.7 percent, to $18,450 a metric ton on the London Metal Exchange, the lowest intraday price since June 20, 2006. It rebounded to trade up $25 at $18,800 as of 10:15 a.m., still heading for a weekly loss of 7.8 percent.

Nickel has fallen 28 percent this year, the worst among all LME-traded metals. Prices are now below production costs of so- called nickel pig iron, which accounts for about 5 percent of nickel supply, according to Charles Cooper, a mining analyst at Evolution Securities.

``With falling nickel prices we estimate that production of nickel in pig iron may be one of the first to succumb should prices remain at current levels or lower for an extended period,'' Cooper said in an e-mailed note today.

He estimates it costs $22,000 to $26,000 to produce a ton of nickel pig iron, which stainless-steel makers used as a cheaper alternative to pure nickel after the metal surged to a record in 2007.

Betting on Declines

The most recent LME data showed a short position, or a bet on lower prices, accounts for between 20 percent and 29 percent of total shorts for the contract expiring in August. There are three more shorts for the month, each accounting for between 5 percent and 9 percent.

LME-monitored copper stockpiles jumped $2,600 a ton, or 2 percent, to 133,475 tons, the highest since March 7. They have increased 8.9 percent this month. Including those at commodity exchanges in New York and Shanghai, inventories totaled 181,027 tons, or 3.5 days of global consumption, according to Bloomberg calculations. Last year's average was 4.9 days.

Copper increased $50, or 0.6 percent, to $7,950 a ton.

Among other LME-traded metals, aluminum rose $15.25 to $2,965.25 a ton and zinc added $12, or 0.7 percent, to $1,868. Tin increased $50, or 0.2 percent, to $22,400.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net