Nickel seen scaling highs

Demand from steel producers likely to rise in a month

Nickel prices "� overseas and domestic "� are likely to move up in the next fortnight as the global supply surplus is diminishing, said traders and analysts.

"Nickel has lagged behind so far in the second half of 2005 (calendar year), but the falling price trend has stabilised and we believe there are good prospects for the metal to test higher levels again," according to a Barclays Capital note.

Traders say stocks for supply have accumulated as nickel prices on the London Metal Exchange have remained low. While LME stocks continue to build up, these seemingly are low in a historical context.

Tuesday's opening stocks at the LME were 24,840 tonne, compared with 19,104 tonne a month back.

Also tight demand-supply scenario or supply disruptions "� like the present situation in case of other metals "� will only push up nickel prices.

Tuesday LME three-month nickel traded at $13,300/13,305 a tonne, down from Monday's close $13,375 a tonne. LME spot nickel traded at $13,200 a tonne, down from Monday's close $13,240 a tonne.

The International Nickel Study Group reported a large global nickel market surplus in its latest data release for the January-September period this year, pegging it at 32,000 tonne, said Barclays note.

"We believe the worst is behind, and are looking for the nickel market to tighten again in Q1 06 (i.e. the first quarter of calendar year 2006). We recommend going long the March 06 contract (on the LME)," it added. Nickel demand, traders say, from steel producers (who use the former as a raw) is likely to rise in a month.

"Steel prices in Europe have started improving and this signals that fresh demand (for steel) is coming in. This, in turn, will also boost nickel prices as steel producers will eventually buy more nickel," said a New Delhi-based trader.

Global nickel production this year has been hit due to industrial action, maintenance shutdowns, technical glitches and feed shortages, which, according to industry consultant CRU, led to a loss of 44,000 tonne nickel.

"However, when the loss happened, it was timely given the weak demand from the steel industry. Overall, it did hit stock surplus and thus, will create a demand-supply mismatch as fresh demand comes in," said another trader.