Nickel Interest at Highest Since 2005 as Factories Boost Output

By Claudia Carpenter

July 15 (Bloomberg) -- Nickel open interest, or bets on movements in prices of the metal, climbed to the highest since at least 2005 as factories that make stainless steel, the biggest use for nickel, ramp up production.

The total open interest was 98,672 contracts on July 10, the most since at least November 2005, according to Bloomberg data. European stainless steel makers have “entered a re- stocking phase,” driving demand higher in the second half of 2009, according to a J.P. Morgan report published on July 13.

“It is quite possible that the stainless steel mills are rushing into buy nickel now on the expectation that nickel prices are going to rise,” said David Wilson, an analyst at Societe Generale SA in London. “Everybody is expecting higher prices” next year, he said.

Nickel for delivery in three months jumped $275, or 1.8 percent, to $15,850 a metric ton by 12:45 p.m. on the London Metal Exchange. Prices have jumped 35 percent this year. Stainless steel accounts for 64 percent of nickel consumption, according to Citigroup Inc. estimates.

Madrid-based Acerinox SA, Spain’s largest stainless-steel producer, will probably increase capacity utilization at its plants in U.S., Spain and South Africa to 70 percent or 75 percent in a few months from 50 percent this month, J.P. Morgan’s London-based analyst Jeffrey Largey wrote in the report. Finland’s Outokumpu Oyj said last month it will increase its production capability after an increase in the nickel price “triggered some purchasing activity.”

Restocking for inventories is not an indication of demand from stainless steel buyers, Wilson said. “We’re not really seeing a pickup in end-user demand. You have to be a little cautious.”