Nickel drops for first session in 3; Gains may be overextended

Nickel declined on the London Metal Exchange for the first time in three sessions on speculation that gains that brought the metal to the highest since at least 1987 were overextended.

Technical charts used by some investors to make investment decisions show nickel has risen too much, too fast. The so-called relative strength index registered a reading of 66.42 today. A reading at or above 70 indicates a price decline.

"Since last week gains were exaggerated so we ran into profit-taking today by some macro funds," Alex Heath, head of base metals at RBC Capital Markets in London, said by telephone.

Nickel for delivery in three months dropped $50, or 0.2 percent, to $33,400 a metric ton as of 12:08 p.m. in London. Earlier, it rose to $34,100 a ton, the highest since at least 1987, beating the previous 19-year high set on Nov. 24 by $550.

Nickel, used to make steel resistant to corrosion, has more than doubled in the past year because of increasing consumption. Stainless-steel producers, which consume about two-thirds of the metal made, may increase output 14 percent this year to 27.8 million tons, the International Stainless Steel Forum said last month.

The metal's gains since last week came during the Thanksgiving holidays in the U.S. so trading was thinner, Heath said. The contract increased 12 percent last week, the biggest weekly gain since July.

New Caledonia

Production disruptions on the French-controlled Pacific island of New Caledonia were compounding price pressures. Eramet SA, operator of the world's largest ferronickel smelter, has lost 50 tons a day of metal production at its Doniambo plant due to an island-wide strike that began Sept. 25.

Cia. Vale do Rio Doce, which bought the world's second- largest nickel producer Inco Ltd. last month, said on Nov. 24 that it had to postpone production at its Goro mine, also on the island, to 2008, from 2007. Last week, a French court ordered the construction work at Goro to stop after a local environmental group said the mine could create pollution.

Goro will be able to produce 60,000 tons of nickel a year, or about 5 percent of world supply.

Nickel stockpiles gained 588 tons, or 9.3 percent, to 6,942 tons, according to the LME daily report, the biggest one-day jump since Oct. 27. Still, inventory has plunged 81 percent this year.

Among other LME-traded metals, copper lost $65, or 0.9 percent, to $7,090 a ton and aluminium dropped $24.75, or 0.9 percent, to $2,693.25 a ton. Led declined $8 to $1,565 a ton and tin advanced $50 to $10,100. Zinc slipped $70 to $4,435 a ton.