Nickel advances to highest in 19 years on LME

Nickel rose to its highest in at least 19 years in London after a report showed stockpiles may decline, reducing supply of the metal used in stainless steel. Zinc was among other metals that also advanced.

Inventory monitored by the LME booked and scheduled for future delivery to buyers, known as canceled warrants, rose 330 metric tons, or 29 percent, to 1,560 tons, the exchange said today in a daily report.

"Canceled warrants have risen, which have been beneficial to the market," said David Thurtell, a London-based metals analyst at BNP Paribas. "Liquidity is thin because of the holidays in Japan and the U.S."

Nickel for delivery in three months on the LME gained $1,600, or 5.2 percent, to $32,750 a ton, the highest since at least 1987, and $125 more than the previous 19-year high set on Oct. 20. Nickel traded at that level as of 3:50 p.m. local time.

LME nickel inventory dropped 150 tons to 6,480 tons, the exchange said today. The stocks have slumped 70 percent in the past year. Demand will beat supply by 40,000 tons in 2006, Societe Generale forecast earlier this month.

Consumption of nickel grew this year in line with global stainless steel production. Stainless-steel makers may increase output 14 percent this year to 27.8 million tons, the International Stainless Steel Forum said last month.

Zinc, the metal used to galvanize steel, rose close to a record as declining stockpiles showed that production still lags behind demand. It gained $100, or 2.3 percent, to $4,460 a ton on the LME. Zinc traded at a record $4,580 on Nov. 10.

Rising Zinc Use

Inventory monitored by the exchange dropped 1.2 percent to 87,925 tons, the lowest since April 1991. Consumption exceeded output by 167,000 tons in the nine months to September on increased demand from China, the world's largest consumer of the metal, the World Bureau of Metal Statistics said yesterday.

"Continued declines in stockpiles are positive for zinc," said Roy Carson, a London-based trader at Triland Metals Ltd., one of 11 companies dealing on the LME's floor. "I'm looking for the metal to test previous highs."

China's zinc use increased 29 percent during January to September, the Hertfordshire, England-based WBMS said. Consumers have tapped stockpiles to fill the production shortfall, and inventory has plunged 80 percent in the past year.

The supply tightness for zinc created a situation on the LME known as a backwardation. Zinc for immediate delivery was $82 more expensive than the benchmark-three month price as of yesterday, almost double the $42 gap on Nov. 21, showing buyers are paying more if they need metal urgently.

In a market with ample supplies, longer-dated contracts trade higher than nearby ones due to storage and interest costs.

Prices of zinc for immediate delivery may rise to $5,400 a ton around January due to the supply shortfall, Michael Lewis, head of commodities research at Deutsche Bank AG, said Nov. 10.

The U.S. is closed today and tomorrow for Thanksgiving, Japan is also closed today.

Among other LME-traded metals, copper rose $92, or 1.3 percent, to $6,992 a ton, and lead added $16 to $1,549. Aluminium gained $15 to $2,690 and tin advanced $75 to $10,000.