By Jae Hur and Jason Scott April 16 (Bloomberg) -- Nickel, used to make stainless steel corrosion-resistant, advanced to the highest level in 23 months on speculation the market will swing into deficit for the first time in four years as a recovering economy boosts demand. The metal for three-month delivery gained as much as 0.6 percent to $27,400 per metric ton today, the highest price since May 2008, and traded at $27,350 a ton at 12:45 p.m. in Singapore. Nickel has jumped 60 percent in 10 weeks and more than doubled in the past 12 months as the fastest growth in almost three years in China, the biggest user, boosts consumption of stainless steel in homes, buildings and the food and chemical industries. Shares of OAO GMK Norilsk Nickel, the world’s largest producer of refined nickel, have soared 149 percent in the past year. “The stainless steel market has picked up but the mines are still shut,” said Peter Strachan, a Perth-based analyst for independent advisory company StockAnalysis. “It takes months and a lot of capital to start these mines back up.” World demand will probably exceed supply by 36,000 metric tons in 2010, the first deficit since 2006, said Akira Nozaki, general manager in the nickel sales and raw material division of Sumitomo Metal Mining Co., Japan’s biggest producer. The market had a surplus of 27,000 tons last year, he said in an interview April 14. Two-thirds of world supply is used in stainless steel. Global consumption was 111,000 tons in February, exceeding primary production of 107,700 tons, the International Nickel Study Group said in an e-mailed report April 15. Shortfall Predicted “We’ve recently changed our projections for this year to a supply deficit” as demand for stainless steel and nickel has been increasing in China and other major economies, Nozaki said April 14. “Before this latest revision, we’d projected a surplus of 38,000 tons.” China’s economy grew 11.9 percent in the first quarter from a year earlier, the biggest gain since the second quarter of 2007, and more than the median estimate of 11.7 percent from a Bloomberg survey of economists. Industrial production climbed 18.1 percent in March, and retail sales increased 18 percent, data this week showed. The global shortfall may be 18,600 tons, according to Morgan Stanley March 31. Barclays Capital predicted a deficit of 6,000 tons on March 19 and Vanessa Davidson, managing consultant in the nickel and chrome group at London-based researcher CRU, said March 18 the deficit would be 56,000 tons. High Inventories “We don’t agree nickel will move into a deficit this year as we’re expecting a surplus to widen,” Judy Zhu, an analyst at Standard Chartered Bank, said from Shanghai this week. “We think the price gains are excessive given the metal has comparatively the highest level of stockpiles.” Inventories in warehouses monitored by the LME climbed to 166,476 tons on Feb. 8, the highest level in at least more than three decades. Inventories now total 151,878 tons. Nickel supplies from new mines may create a surplus from next year, Andrew Mitchell, an analyst at Addlestone, England- based researcher Brook Hunt, a Wood Mackenzie company, said March 18. About 350,000 tons will reach the world market over the next five years, Mitchell said. New projects include Vale SA’s Goro mine in New Caledonia and Sherritt International Corp. of Canada’s Ambatovy nickel project in Madagascar, he said. West Leinster “Although we may see a correction, the outlook for nickel will remain bullish in the second quarter when stainless steel output grows,” said Hwang Il Doo, a senior trader with KEB Futures Co. in Seoul, today. “Stockpiles have been declining amid production disruptions at Vale’s Sudbury and BHP’s Nickel West Leinster operations.” BHP Billiton Ltd., the world’s biggest mining company, said this week full production from the Nickel West Leinster operations in Western Australia won’t resume for “several weeks” after a fatality on April 11. Vale’s Sudbury smelter has operated at 50 percent of capacity since January amid a strike by a group of unionized workers that started in July after contract talks broke down. Vale is the second-biggest producer after Norilsk Nickel. The nickel price is still 47 percent below the record $51,800 a ton on May 9, 2007. Plunging prices forced BHP Billiton to close in January 2009 its $2.2 billion Ravensthorpe mine in Australia, eight months after it opened. The mine was sold for $340 million to Vancouver-based First Quantum Minerals Ltd., which said December it may restart the 38,000-ton a year operation in 18 months. Perth-based Albidon Ltd. was forced to abandon the Munali Nickel project in Zambia and in April 2009 went into receivership. Mincor Resources NL, which supplies BHP, mothballed its Miitel mine in Western Australia in December 2008 and is yet to announce it will reopen. To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net; Jason Scott in Perth at jscott14@bloomberg.net

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