Nickel gains as waste spill highlights supply worries

LONDON: Nickel prices rose on Thursday after a waste spill threatened to close a processing plant in Papua New Guinea, adding to fears of supply shortages.

Benchmark nickel on the London Metal Exchange (LME) was up 0.4% at $16,145 a tonne at 1027 GMT, nearing a 16-month high of $16,690 reached three weeks ago.

The stainless steel ingredient has leaped almost 50% this year, rising rapidly since July amid worries that top ore producer Indonesia could ban exports earlier than expected, potentially disrupting the market.

The premium for cash nickel over the three-month contract on the LME has spiked to a 10-year high of $97 a tonne, signalling tight nearby supply. One party holds 50% to 80% of available LME inventories.

Now, a battery nickel processing plant owned by Metallurgical Corp of China faces possible closure after it spilled mine waste into Papua New Guinea's Basamuk Bay.

"That brings to the forefront the ongoing supply concerns from some of these (producer) countries," BMO analyst Colin Hamilton said.

But he said the big premium for cash nickel on the LME likely showed prices had risen too fast, rather than real shortages of material. Strong output of nickel pig iron from China meant nickel should cost closer to $13,500, he added.

CHINA: Factory activity in China is expected to have contracted for the fourth straight month in August, dampening demand. China is the world's largest metals consumer.

TRADE WAR: The United States on Wednesday made official its extra 5% tariff on $300 billion in imports from China and set collection dates of Sept. 1 and Dec. 15, the latest step in a trade war that has dented economic growth.

YUAN: China's yuan touched a new 11-1/2-year low, raising the cost of dollar-priced metals for Chinese buyers and potentially weakening demand.

NICKEL STOCKS: Headline inventories in LME-registered warehouses slumped to a 6-1/2-year low of 141,906 tonnes this month before rising slightly to 150,708 tonnes.

POSITIONING: Speculative investors held a net long position in LME nickel equal to 19% of open contracts as of Tuesday, brokerage Marex Spectron said.

The expansion of bets on higher prices leaves nickel vulnerable to a correction if speculators change their minds, analysts at Commerzbank said.

COPPER: Fresh cancellations of 24,425 tonnes took on-warrant copper stocks available to the market in LME warehouses to 241,150 tonnes, down from more than 300,000 tonnes earlier this month.

Benchmark copper was up 1.1% at $5,751.50 a tonne.

OTHER METALS: LME aluminium was 0.2% lower at $1,743.50, zinc rose 1% to $2,279, lead was unchanged at $2,066 and tin gained 0.4% to $15,820.