Nickel in London Extends Gain to Two-Year High on Supply Concern

May 12, 2014 3:29 am ET

May 12 (Bloomberg) -- Nickel extended gains to the highest price in two years on speculation that supplies of the metal used to make stainless steel will be tighter and prices will rise further in coming months.

The contract for delivery in three months on the London Metal Exchange rose as much as 4.9 percent to $20,870 a metric ton, the highest since February 2012, and was at $20,580 at 4:17 p.m. in Tokyo. The price rose 9 percent last week, the most since February 2010.

Nickel has jumped 48 percent this year, the best performer on the LME. Indonesia, the biggest producer from mines, banned ore shipments in January and operations at Vale SA’s plant in New Caledonia were halted last week after a spill of a solution. Concern that tougher sanctions will be imposed against Russia added to the pressure.

“Focus on supply shortages in the third and fourth quarters is fueling the buying,” said Jonathan Barratt, chief investment officer at Ayers Alliance Securities in Sydney. “The hoarding only adds to an already deteriorating geopolitical picture and supply constraints egging the price on.”

Two Ukrainian regions held referendums on autonomy as European leaders threatened more sanctions against Russia, the second-biggest producer of refined nickel.

“It feels as if investors are seeing no resolution to the difficult situation in the Ukraine,” Barratt said. “Indonesia provides the back drop to support.”

Copper in London climbed 1.2 percent to $6,827.50 a ton after touching $6,832 earlier, the highest level since March 7. Inventories tracked by exchanges in Shanghai, London and New York have dropped 38 percent this year to the lowest since November 2008.

The metal for immediate delivery was $52 a ton above the three-month contract, the widest since March 3. Backwardation, when nearby metal is more expensive than longer-dated futures, usually signals limited supplies.

The contract for delivery in July on the Comex in New York added 1.1 percent to $3.1175 a pound. In Shanghai, futures for delivery in August rose 1.6 percent to close at 48,010 yuan ($7,698) a ton.

On the LME, aluminum, zinc and lead also advanced, while tin declined.