Nickel Gains in London as Russian Producer Considers Output Cut

By Chanyaporn Chanjaroen

Aug. 7 (Bloomberg) -- Nickel rose the most in almost a month in London after Russia's third-largest producer said it may cut production because of this year's price slump. Aluminum and copper also advanced.

Industrial Metallurgical Holding, based in Moscow, shut its two nickel plants for 10 days at the end of July for maintenance and is considering an output cut, spokesman Pavel Kovalenko said today. Minara Resources Ltd., Australia's second-largest producer, deferred a A$300 million ($272 million) expansion plan.

``We would expect to see further projects put on hold and production cuts should prices head lower than $17,000,'' RBC Capital Market traders, led by Alex Heath, in London wrote today in a report. Cash costs for 10 percent of world nickel production exceeded that price level, according to the brokerage.

Nickel for delivery in three months gained as much as $1,010 a metric ton, or 5.7 percent, to $18,810 a ton on the London Metal Exchange, the biggest one-day increase since June 12. The contract traded at $18,600 a ton as of 12:41 p.m. local time, paring this year's loss to 29 percent.

Nickel prices have fallen for a second consecutive year as stainless-steel mills, the biggest user of the metal, slowed purchases because of weakening construction in the U.S. and Europe. OAO GMK Norilsk Nickel and Cia. Vale do Rio Doce, the world's largest producers, are unlikely to reduce output at current prices, according to GFMS Metals Consulting Ltd.

High Prices

``Given the still-high prices of byproducts such as platinum group metals, cobalt and copper, prices would have to fall by a few thousands dollars more'' for the companies to cut output, Neil Buxton, GFMS Metals managing director, said today by phone form London.

Industrial Metallurgical's Ufaleynickel plant produced 14,144 tons of nickel last year, while its Reznickel plant makes an intermediate product processed at Ufaleynickel. The company sold 5,796 tons of the metal in Russia last year.

LME-tracked lead stockpiles fell 1.6 percent to 91,575 tons. The contract gained $50, or 2.4 percent, to $2,115 a ton.

Investors should buy copper for delivery in 63 months if it falls below $5,500 a ton, UBS AG said in a report dated yesterday, when the price closed at $6,387.

Investors should also short aluminum, or bet prices will decline, if the benchmark price is more than $3,000 a ton by the end of September, according to the report.

``Any summer production interruptions from China should happen in August or September,'' UBS said. ``Thereafter Chinese smelters will be able to quickly make up any resulting shortfall.''

Copper for delivery in three months gained $31 to $7,646 a ton and aluminum rose $21.50 to $2,927.50. Lead added $30 to $2,095 a ton and tin increased $50 to $20,525 a ton. Zinc lost $8 to $1,757.

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