By Claudia Carpenter Dec. 4 (Bloomberg) -- Nickel erased gains in London as inventories at a nine-year high signaled demand led by stainless- steel makers is lagging production even after mining cutbacks. Nickel inventories in warehouses monitored by the London Metal Exchange increased 810 metric tons, or 1.3 percent, to 64,944 tons, the most since February 1999. Prices had gained after Cia. Vale do Rio Doce Chief Executive Officer Roger Agnelli said the company may cut output at Sudbury in Canada. “Demand is still relatively weak and producers have only started to cut production,” said Michael Widmer, an analyst at BNP Paribas SA in London. “The market is oversupplied at the moment. There is no doubt about it.” Nickel for delivery in three months fell $49, or 0.5 percent, to $9,156 a metric ton as of 12:49 p.m. on the London Metal Exchange. Prices had climbed $170, or 1.9 percent. The cuts at Sudbury may be announced as early as today, the Globe and Mail reported, citing unidentified people familiar with the situation. Agnelli made his comments today at an event in Sao Paulo. Sudbury accounts for almost 6 percent of global nickel mine output, according to BNP Paribas SA. The cutbacks in nickel production after prices began falling in May last year will narrow the supply surplus next year to 24,000 tons, from 70,000 tons forecast before the reductions, Widmer said. The three-month contract will average $11,300 a ton next year, he said. Nickel is down 65 percent this year. Copper, aluminum and zinc prices on the Shanghai Futures Exchange dropped by the exchange-imposed daily limit. In London, copper dropped $66 to $3,380 a ton, aluminum fell $26 to $1,590 a ton and zinc declined $4 to $1,136 a ton. Lead jumped $14 to $985 a ton and tin dropped $125 to $11,600 a ton. To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net

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