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Nickel Market Moves Into Backwardation for First Time in a Year in London
Sep 16,2010 10:55CST
industry news

LONDON, Sep. 16 --  Nickel for immediate delivery traded at a premium to three-month metal in London for the first time in more than a year, potentially signaling concern about scarcity.

Cash nickel traded at a premium of $2 a metric ton to the three-month contract yesterday, compared with discounts of $6 on Sept. 13 and $39 a week ago. The so-called backwardation is the market’s first since Sept. 1, 2009.

Inventories of nickel tracked by the London Metal Exchange have dropped 28 percent to 119,856 tons from this year’s peak on Feb. 8. One party held between 30 percent and 39 percent of stockpiles as of Sept. 10, according to figures from the exchange.

“There isn’t a large amount of available warrants,” David Wilson, director of metals research at Societe Generale SA in London, said today by phone, referring to the concentrated ownership of LME nickel stocks. “If all those warrants were available, it would be much more difficult to squeeze the market.”

Financing accords may have tied up as much as an estimated 65 percent of LME nickel, according to Credit Agricole SA’s investment-banking unit.

Stockpile Orders

Orders to draw nickel from LME inventories rose 2.5 percent to 4,452 tons today, up almost sixfold from the start of this year, according to daily exchange data. They jumped 26 percent on Sept. 10.

On the futures market a single long position, or bet on higher prices, accounted for more than 40 percent of contracts expiring in October as of Sept. 10, LME figures show. Two parties had positions comprising between 10 percent and 19 percent of contracts maturing this month.

One short position, or bet that prices will fall, made up between 20 percent and 29 percent of open September futures as of Sept. 10, and another accounted for 30 percent to 39 percent of October contracts. A single party owned more than 40 percent of contracts expiring in November.

Nickel for delivery in three months fell $155, or 0.7 percent, to $23,195 a ton at 11:35 a.m. on the LME. The contract yesterday reached $23,355, the highest intraday price since May 10. The metal is mostly used to make stainless steel.

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