By: Dorothy Kosich, Mineweb -
http://www.mineweb.net/base_metals/934228.htm
17-AUG-06

RENO, NV (Mineweb.com) — Facing historically low nickel inventories and a “genuine material shortage,” the London Metal Exchange Wednesday imposed trading restrictions on the metal.

Given the myriad of uses of nickel in construction, public facilities, households, and electronics, an acute nickel shortage has potential impacts for First World and developing nations.

In a news release, the LME announced it had imposed a backwardation limit of $300 per tonne per day in the nickel market and suspended the Lending Guidance in respect to those with dominant long positions in nickel.

As the three-month nickel contract price hit a record $29,200 a tonne, LME Chief Executive Simon Heale said, “Our first priority is to ensure that trading remains orderly and to prevent the risk of settlement defaults.”

An LME special committee “has been constantly monitoring nickel stocks, the effect of those trading for the nearby prompt dates and conditions in the nickel market,” according to Heale. Global nickel inventories have dwindled to less than a single day of consumption. The cash price of nickel increased to $33,350 a tonne as of Wednesday.

He added that the committee “will remove the backwardation limit and reintroduce Lending Guidance as soon as it considers it prudent to do so.”

The LME gave some relief to those with short positions in nickel, announcing that as of August 18, anyone with a short position who is unable to make physical delivery could postpone that delivery at a cost of $300 per tonnes per day.

Analysts speculated that a trader may hold a very large short position. The Financial Times reported Monday that the latest LME update shows that one participant or group holds from 30 to 40% of the short nickel positions on the exchange. The position may have been building since mid-July.

The world’s fifth larger steel maker, Korean company POSCO denied reports that it is having trouble covering nickel short positions on the LME. The Wall Street Journal reported that POSCO was allegedly struggling to cover a 10,000 tonnes short nickel position on the LME and another 20,000-tonnes position on the physical market. POSCO has maintained that its LME short position is less than 1,000 tonnes, and doesn’t have any short positions on the physical market.

In the meantime, Canada’s massive Voisey’s Bay mine has been hit by a strike. Nickel markets are anticipated to remain tight until the end of the decade, due to the voracious market for stainless steel in China and India. Meanwhile, the only confirmed sources of major new nickel supply, such as Inco’s Goro in New Caledonia and BHP Billiton’s Ravensthorpe in Western Australia, won’t come on line for a few years.

Despite the high prices and lack of supply, meaningful substitution of other metals for nickel has yet to occur.

WHAT IT MEANS TO CONSUMERS

The main first use for nickel is stainless steel, which can be found in cars, skyscrapers and other buildings, and to help maintain and transport clean and safe drinking water to homes and offices. It is also used in wastewater treatment systems, plumbing systems, and cooking and household utensils and appliances.

A base metal, nickel is also used in electronics and electroplating. Nickel coatings also help resist heat and rust corrosion. Nickel and its related products are traded internationally with few tariffs or other barriers imposed.