METALS-Funds push for higher Q1 close; nickel at 21-mth high

Published: 31 Mar 2010 17:08:29 PST

* Most commodities end Q1 with price gains

* Nickel seen extending gains in Q2, traders eye fund money

* Coming up: U.S. Chicago PMI March (1345 GMT)

LONDON, March 31 - Nickel hit its highest in over 21 months on Wednesday and is on track to outperform the rest of the metals complex in the first quarter, as supply shortages and robust demand from stainless steelmakers buoyed prices.

Funds keen to close the quarter with firmer prices have pushed aluminium and zinc to multi-week peaks and tin to its highest since September 2008. Copper was steady after an earlier fall, but traders expected it to recover later in the day.

The price of nickel, a key ingredient of stainless steelmaking, touched $24,990 a tonne, its highest since June 2008, and was at $24,970 a tonne in the open outcry trade, versus Tuesday's $24,300.

Copper was slightly down at $7,841 a tonne after falling below $7,800 a tonne earlier, versus a last bid of $7,849 a tonne. The metal, used in construction and wiring, is set for a quarterly gain of around 6 percent.

Analysts believe there is further room on the upside.

"We think (nickel) prices will peak in Q2," said David Wilson, analyst at Societe Generale. "We're seeing stainless steel production accelerating, stock levels are begining to edge down and, more importantly, (the) scrap market is very, very tight."

Stainless steel mills account for about two-thirds of global nickel demand.

A series of strikes, project delays and production problems are expected to send the nickel market into deficit in 2010, the first time in four years.

LME nickel inventories hit a record high above 166,000 tonnes in early February. But since then, they have dropped around 6 percent to their lowest since late-2009.

"The outflows from the LME in terms of types of nickel has mainly been briquettes...which is preferred because it's smaller and it's easier to fit into feed mechanisms..which to me indicates that it's consumption driven phenomenon," said Wilson.

"FUND PUMP"

Investment flows will continue to be a key driver of the industrial metals market in the second quarter, analysts said, particularly for copper, where the market needs fresh flows to keep the rally going.

"I'll call it fund pump at the end of the month," a trader on the floor of the LME said. "That's why the whole complex is rising. When there's money in the system you can't fight it."

"For copper, the next resistance is at $7,865. Breaking above that would mean the rally carrying on to next month," he added.

Moves in the currency markets have been a major driver of commodities. On Wednesday, the euro's strength versus the dollar helped improve the sentiment, though the single currency still looks vulnerable because of Greece's fiscal problems.

Battery material lead was bid at $2,150 from $2,135, while aluminium rose to $2,321 a tonne, its highest since March 19 and was last at $2,319 a tonne versus $2,294.

Investors are awaiting the U.S. March non-farm payroll data, scheduled to be released on Friday, for more insight into the health of the economy. Later on Wednesday, they will watch out for U.S. Chicago PMI data.

Zinc hit a fresh three-week high at $2,395.50 a tonne and was last at $2,388 a tonne from Tuesday's $2,380. Tin touched $18,515 a tonne, its highest since September 2008, and was last bid at $18,400 a tonne versus $18,370. Metal Prices at 1214 GMT Metal Last Change Percent Move End 2009 Ytd Percent

move COMEX Cu 352.95 0.00 +0.00 334.65 5.47 LME Alum 2313.00 19.00 +0.83 2230.00 3.72 LME Cu 7835.00 65.00 +0.84 7375.00 6.24 LME Lead 2152.00 1.00 +0.05 2432.00 -11.51 LME Nickel 24895.00 595.00 +2.45 18525.00 34.39 LME Tin 18400.00 30.00 +0.16 16950.00 8.55 LME Zinc 2390.00 10.00 +0.42 2560.00 -6.64 SHFE Alu 16575.00 -85.00 -0.51 17160.00 -3.41 SHFE Cu* 61320.00 -370.00 -0.60 59900.00 2.37 SHFE Zin 18795.00 -115.00 -0.61 21195.00 -11.32 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07