Nickel Rises to Two-Week High on Outlook for Supply Reductions

By Claudia Carpenter

Dec. 11 (Bloomberg) -- Nickel rose to a two-week high in London on prospects mining companies will accelerate production cuts in line with declining demand. Copper fell.

Production in the past 10 years was more concentrated among a few miners than any of the industrial metals such as copper, allowing producers more leeway to restrain output, according to a BNP Paribas SA report yesterday. Nickel has dropped 59 percent this year as demand led by stainless steel makers slumped, swelling inventories.

Nickel miners “have been optimizing production” better than other metal producers, said Michael Widmer, an analyst at BNP Paribas in London. “Next year I think inventories will not rise as much because of the reduced output.”

Nickel for delivery in three months gained $600, or 5.8 percent, to $10,900 a metric ton as of 10:41 a.m. on the London Metal Exchange, the highest since Nov. 26. Prices have jumped 20 percent this week.

Stainless steel demand is still shrinking and the market may not improve next year, Outokumpu Oyj Chief Executive Officer Juha Rantanen said in a statement today. Nickel supply cuts by miners including OAO Norilsk Nickel haven’t kept pace with slumping demand as inventories in warehouses monitored by the London Metal Exchange climbed to the highest since August 1995.

“The main problem at the moment is on the demand side,” said Eliane Tanner, commodity analyst at Credit Suisse Group in Zurich. “Production cuts are not happening fast enough to compensate for the slowing demand.”

Nickel may trade between $9,000 and $10,000 a ton by the end of the first quarter of 2009 and to a range of $9,500 and $10,500 a ton a year later, Credit Suisse said in a report today.

Aluminum Advances

Aluminum gained on expectations a drop in the dollar will support demand for industrial metals priced in the U.S. currency, Widmer said. Aluminum rose $34 to $1,560 a ton. Copper dropped $5 to $3,300 a ton. Yesterday’s 3.3 percent jump was probably too much given that “nothing fundamentally has changed -- things are pretty terrible,” said Gayle Berry, an analyst at Barclays Capital in London.

Copper inventories fell 750 tons to 302,850 tons, the first decline in a week.

Tin gained $125 to $11,975 a ton, lead jumped $50 to $1,040 a ton and zinc added $1 to $1,105 a ton.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net