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UPDATE 3-Nickel below peak after LME intervention
Thu Aug 17, 2006 8:14am ET
Time: 8:18am ET
By Nick Trevethan
LONDON, Aug 17 (Reuters) - Nickel futures held below record highs on Thursday as physical metal stocks dwindled and after the London Metal Exchange (LME) intervened to prevent any contract defaults, dealers said.
Nickel <MNI3> closed at a record peak of $29,200 on Wednesday as available stocks of metal in LME warehouses fell further, prompting the exchange to intervene overnight for the first time since 1988 by limiting cash premiums to $300 a day.
"Nickel stocks are at historically low levels and we now have a genuine material shortage. Our first priority is to ensure that trading remains orderly and to prevent the risk of settlement defaults," Simon Heale, LME Chief Executive, said on Wednesday.
The LME's special committee said anyone with a short position in nickel falling due from Friday who was unable to make physical delivery could defer for one day at a penalty of $300 per tonne.
"I suppose the intervention was inevitable," an LME trader said, adding that it could attract more metal to the market.
Prices were expected to remain strong as stocks fell 42 tonnes to 6,120 tonnes on Thursday.
Of that, just 1,248 tonnes were available on uncancelled warrants to support the 1.3 million tonne-per-year market.
Dealers said stocks might hit zero.
ABN AMRO analyst Nick Moore said the value of available nickel in LME warehouses totalled $44 million.
"We have run out of nickel effectively. There is a massive squeeze in place and unless producers can be persuaded to put metal onto the exchange the pricing tension will remain acute," he said.
An LME spokesman said: "In the past stocks have never reached zero. The interaction of supply and demand has ensured that more material flowed into warehouse."
In the official rings, nickel fell to $28,650 on profit-taking.
"The market is very messy - verging on the disorderly, but the shorts have gotten off lightly at $300, I would have made them pay $1,000," a fund source said.
He said going short, or betting that prices would fall, was a very risky strategy.
"We have almost hit $30,000. I don't want to predict where prices will go, but the trend is very strong. I certainly wouldn't suggest going short," he said.
The tightness in the supply was also highlighted by the hefty premium for cash metal above three-month contracts of $3,500/$4,000 a ton
Copper futures were down, with three-month futures <MCU3> trading at $7,550 a tonne, down from previous close of $7,700.
Dealers said price moves would depend on the outcome of talks in Chile to end the strike at the world's largest copper mine.
Talks to end the 10-day strike at the Escondida mine, majority owned by global miner BHP Billiton (BLT.L: Quote, Profile, Research) (BHP.AX: Quote, Profile, Research), ended mixed on Wednesday as the company reported progress but the union said there was none.
Escondida, which accounts for 8 percent of world copper output, was producing at more than 50 percent of normal despite the strike due to a functioning contingency plan, its corporate affairs manager said.
"So with bullish and bearish news doing the rounds, the metals are likely to remain volatile and the lower summer volumes are unlikely to help," BaseMetals.com said in a report.
(Additional reporting by Lucy Hornby in Shanghai
Thu Aug 17, 2006 8:14am ET
Time: 8:18am ET
By Nick Trevethan
LONDON, Aug 17 (Reuters) - Nickel futures held below record highs on Thursday as physical metal stocks dwindled and after the London Metal Exchange (LME) intervened to prevent any contract defaults, dealers said.
Nickel <MNI3> closed at a record peak of $29,200 on Wednesday as available stocks of metal in LME warehouses fell further, prompting the exchange to intervene overnight for the first time since 1988 by limiting cash premiums to $300 a day.
"Nickel stocks are at historically low levels and we now have a genuine material shortage. Our first priority is to ensure that trading remains orderly and to prevent the risk of settlement defaults," Simon Heale, LME Chief Executive, said on Wednesday.
The LME's special committee said anyone with a short position in nickel falling due from Friday who was unable to make physical delivery could defer for one day at a penalty of $300 per tonne.
"I suppose the intervention was inevitable," an LME trader said, adding that it could attract more metal to the market.
Prices were expected to remain strong as stocks fell 42 tonnes to 6,120 tonnes on Thursday.
Of that, just 1,248 tonnes were available on uncancelled warrants to support the 1.3 million tonne-per-year market.
Dealers said stocks might hit zero.
ABN AMRO analyst Nick Moore said the value of available nickel in LME warehouses totalled $44 million.
"We have run out of nickel effectively. There is a massive squeeze in place and unless producers can be persuaded to put metal onto the exchange the pricing tension will remain acute," he said.
An LME spokesman said: "In the past stocks have never reached zero. The interaction of supply and demand has ensured that more material flowed into warehouse."
In the official rings, nickel fell to $28,650 on profit-taking.
"The market is very messy - verging on the disorderly, but the shorts have gotten off lightly at $300, I would have made them pay $1,000," a fund source said.
He said going short, or betting that prices would fall, was a very risky strategy.
"We have almost hit $30,000. I don't want to predict where prices will go, but the trend is very strong. I certainly wouldn't suggest going short," he said.
The tightness in the supply was also highlighted by the hefty premium for cash metal above three-month contracts of $3,500/$4,000 a ton
Copper futures were down, with three-month futures <MCU3> trading at $7,550 a tonne, down from previous close of $7,700.
Dealers said price moves would depend on the outcome of talks in Chile to end the strike at the world's largest copper mine.
Talks to end the 10-day strike at the Escondida mine, majority owned by global miner BHP Billiton (BLT.L: Quote, Profile, Research) (BHP.AX: Quote, Profile, Research), ended mixed on Wednesday as the company reported progress but the union said there was none.
Escondida, which accounts for 8 percent of world copper output, was producing at more than 50 percent of normal despite the strike due to a functioning contingency plan, its corporate affairs manager said.
"So with bullish and bearish news doing the rounds, the metals are likely to remain volatile and the lower summer volumes are unlikely to help," BaseMetals.com said in a report.
(Additional reporting by Lucy Hornby in Shanghai
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