Nickel hits all-time high of $42000 on supply fears

Nickel touched a lifetime high of $42,000 a tonne in early Wednesday trades on the LME following a firm demand from stainless steel producers. This was the sixth consecutive gain on the London exchange and the highest-ever price since the metal began quoting on the LME in 1979.

In the domestic market too, prices of the silvery white metal rose to Rs 1,820 a kg in Delhi and Rs 1,950 a kg in Mumbai.

Nickel, the barometer for price movement in the base metals market, had further potential to gain at least $3,000 to hit $45,000 a tonne by the month-end on tight supply and rising demand, said analysts.

Talks at Xstrata's nickel operations in Sudbury, Canada, between the workers and the management was moving at a slow pace. If an agreement was not reached by January 31, more than 1,000 employees at the Sudbury complex might go on strike, further hitting the global supply of nickel when the inventory of the metal is gradually falling, said experts.

Inventories at the LME-registered warehouses slumped gradually to 5,016 tonne, slightly higher than a day's global consumption at 4,000 tonne.

The inventory lowered by 85 per cent in the last one year from 36,000 tonne to 5,000 tonne, while prices have jumped by more than 170 per cent during the period.

Deutsche Bank forecast a supply deficit of 198,900 tonne in 2007 and 166,800 tonne in 2008, primarily as a result of production delays at the two largest mines scheduled to come onstream "� BHP Billiton's Ravensthorpe in Australia and CVRD's Goro in New Caledonia.

The metal has outpaced all the other LME-traded metals due to capacity expansion by stainless steel mills and cut in production by leading producers. Almost all stainless steel mills have expanded their capacity, which has pushed the demand up.

Eramet, owner of the world's largest ferro-nickel smelter, cut output at its New Caledonia unit by 27 per cent due to a strike that lasted for almost four months till last week. Experts forecast that nickel consumption would beat production by 3,600 tonne this year, following a deficit of 23,300 tonne in 2006.

Nickel is used mainly to help prevent corrosion in steel and awareness created by agencies to use nickel in steel for construction has led to an increase in demand for the metal, especially from developing countries, where the use of galvanised and stainless steel remains in the forefront for structural development.

The growth in demand for stainless steel is forecast at around 7.5 per cent this year and is likely to push nickel prices to new highs. About two-thirds of the world's nickel output is used by stainless steelmakers.