Steel Demand Helps Nickel Extend Its Rally

LONDON, July 2 -- Nickel prices yesterday hit their highest level in nine months, extending its 65 per cent rally in the second quarter of the year.

    This came amid signs of a recovery in stainless steel production, in which the base metal is a key ingredient.

    The rise in nickel prices between April and June dwarfs the increases of other base metals, including copper - 27 per cent - and aluminium - 13 per cent.

    On the London Metal Exchange, nickel prices for delivery in three months surged above $16,500 a tonne, up more than 6.5 per cent on the day and the highest level since lateSeptember. But prices are well below the all-time high of more than $50,000 a tonne set in May 2007.

    Analysts justified the rally on increasing demand for stainless steel - which accounts for 70 per cent of nickel consumption, according to Deutsche Bank - as consumers are restocking.

    Barclays Capital noted that nickel imports in China have risen, hitting a record high in May, while mine output has declined 21 per cent so far this year when compared with 2008.

    The bank cautioned, however, that prices were vulnerable. "Some of the drivers appear unsustainable and it will not be until enddemand conditions improve towards the end of the year, in our view, that there will be a concrete recovery in prices," it said, forecasting nickel prices by late-2009 at $12,800 a tonne.

    Other base metals also rose boosted by stronger Chinese, US and Japanese manufacturing data. Copper rose 3 per cent to $5,120 a tonne while aluminium rose 2.3 per cent to $1,670 a tonne. Zinc and lead gained more than 3 per cent.

    Oil thrashed about in a volatile session, with crude paring its gains after closely followed weekly US government data showed a sharp rise in stocks of petroleum products.

    Crude inventories fell for the fourth consecutive week, according to data from the Energy Information Agency, the statistical arm of the US Department of Energy.

    But this was overshadowed by the sharp rise in gasoline, diesel and heating oil. Crude stocks dropped 3.7m barrels to 350m barrels while gasoline and distillates inventories rose on stronger imports and weaker demand, with the former rising 2.3m barrels and the latter by 2.9m barrels. Nymex August West Texas Intermediate fell 58 cents to settle at $69.31 a barrel. ICE August Brent fell 51 cents to close at $68.79 a barrel.

    Michael Lewis, head of commodities research at Deutsche Bank in London, noted the continued mirroring between oil prices and other asset classes, calculated using data starting in August 2008 that each 50-point move in the US S&P 500 index is approximately a $7-a-barrel move in the West Texas oil price.

    In the agriculture market, raw sugar prices hit a fresh three-year high for a front- month contract, trading as high as 18.01 cents per pound on the day.

    Industry sources said Cargill, the US giant agricultural trading house, took delivery of a huge 1.3m tonnes against the ICE July raw sugar contract, which expired on Tuesday.

    Sugar prices later fell after Brazil reported a large increase in sugar output. In afternoon trading, ICE October sugar was down 0.7 per cent to 17.33 cents.

    (Source: Financial Times)