LME nickel jumps 8 pct on strong outlook

LONDON, Jan 11 - London Metal Exchange (LME) nickel jumped almost 8 percent on Thursday on falling stocks and the outlook for strong demand and tight supply, analysts said.

Nickel touched $34,900 per tonne, only $50 below the all-time high it hit last December, before ending the kerb session at $33,500, up $1,100 from Wednesday's close.

Stocks in exchange-registered warehouses fell 156 tonnes to 6,300, almost 2,000 of which were on cancelled warrant and so earmarked for delivery out of storage.

The premium on metal for nearby delivery was around $1,600 per tonne, indicating a tightly supplied market.

"Another sharp move up in nickel prices is supported by a further widening of the cash to 3-months backwardation," Barclays Capital said in a note, referring to the nearby premium.

It expected erratic trading to continue until the large commodity indexes have completed their annual reshuffle of metals futures.

After that, prices might rise consistently.

"The evidence is that more positive price trends are now starting to assert themselves in a number of markets," it said.

A series of strikes, project delays and cost over-runs at nickel operations around the world, coupled with strong demand from stainless steel makers, has more than doubled nickel prices over the past 12 months.

RE-WEIGHTING

Copper for delivery in three months rose $25 to $5,900, extending Wednesday's 4.4 percent gain, but was still around $3,000 below last May's peak.

At the New York Mercantile Exchange's COMEX division, copper for March delivery closed down 0.50 cent at $2.6590 a lb, after dealing between $2.6085 and $2.70.

Zinc closed at $3,875, up $135 on the LME.

At the start of the week nickel and zinc dropped as re-weighting of metal assets by the Dow Jones/AIG commodity index, which continued this week, triggered a heavy sell-off.

"As long as the re-balancing continues, these markets are impossible to predict," analyst Michael Widmer at Calyon said.

Stephen Briggs, economist at Societe Generale Corporate and Investment Banking, said the decline in copper seen over recent months, bolstered by a surge in LME inventories, was slightly overdone.

Stocks rose by 1,625 tonnes on Thursday to 195,450, more than twice their level at the start of last year, but still cover only four days of global consumption.

"The increase in stocks does not yet represent a market in surplus...the market is always anticipating, but I think it is doing it on slightly misleading information," Briggs said.

Analysts believe the market will shift from a deficit into a slight surplus of around 100,000 tonnes in 2007.

"But the change is not that large as sentiment and recent downward price movements would suggest," Briggs said.

In 2006 China's imports of copper fell 18.6 percent to 2.06 million tonnes as international prices and growing domestic output reduced import demand. [ID:nPEK231155]

But Chinese consumption was ticking up and analysts saw support fpr prices around the Chinese New Year in February when buyers returned after de-stocking.

"The price pattern has now moved against domestic Chinese copper with prices on the LME being lower...it should give an incentive to import a bit more," Widmer said.

ALUMINIUM SQUEEZE

Aluminium rose to $2,745 against $2,710.

The premium for cash metal above the three-month price stood at $85/95, its highest since January 2001, leading analysts and traders to conclude the market was being squeezed [ID:nL10156555].

Widmer said any price impact from a squeeze would be brief but he expected trade to be volatile.

Longer-term aluminium demand from the United States was seen slowing and aluminium prices would go lower this year, he said.

LME aluminium stocks amount to nearly 700,000 tonnes, or some eight days of global consumption.

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