LONDON, July 8 -- Premiums for physical nickel in Europe will likely come under pressure following a tentative agreement to end a year-long strike at Vale's Sudbury, Ontario, mining operations, traders said.

"Eventually it will lead to lower premiums. The only reason the market has been balanced or in deficit is because of the strike, if they had been producing at normal rates we would have had over-supply," a Europe-based trader said on Wednesday.

The settlement of the strike at Brazilian company Vale, one of the world's top nickel producers, could mean an additional 140,000 tonnes or so of annualised nickel supply in the coming months.

The strike settlement also came at a time when the stainless steel sector, which accounts for about two thirds of nickel demand, entered a seasonally weak period for demand over the summer.

"As of yet the Vale news has had little impact on premiums. Business has slowed down already, it's the summer period, so it's difficult to estimate the impact at this stage," said the trader.

Another trader went further, saying premiums, especially in the United States, could actually go higher before the extra Vale supply comes on stream as nobody will deliver to that market knowing this supply is on the cards. 

"It's three months before that material is being offered prompt," the trader said. 

"Premiums will go down but not in the short term. It's going to be snowing in October but are you going to wear a coat today? I need to buy material tomorrow and I can't."

Premiums are the amount paid over and above the LME cash price to cover the cost of shipping and delivering metal. In Rotterdam on Wednesday they were around $450-500 for cut nickel, $100 -175 for full-plate and $400-500 for briquettes.

Although they had yet to react to the Vale news, nickel for delivery in three months on the London Metal Exchange hit a month low of $18,545 a tonne on Tuesday in response to the news.

It traded at around $19,000 a tonne mid-day Wednesday, unchanged from Tuesday's close.