February 16, 2017 / 10:53 AM / in 3 years

METALS-Supply troubles propel nickel to two-month highs

* Large stocks of nickel could deplete quickly

* Indonesian nickel ore exporters face hurdles

* China credit growth to fuel metals demand (Adds closing prices)

By Pratima Desai

LONDON, Feb 16 (Reuters) - Nickel prices rose to two-month highs on Thursday on mounting concerns about supplies after the suspension of mines in top ore producer the Philippines and its decision to cancel contracts for undeveloped mines.

Benchmark nickel on the London Metal Exchange ended up 1.4 percent at $11,070 a tonne, its highest since Dec. 12. Roughly two-thirds of global nickel supply is used to make stainless steel.

The Philippines this week ordered the cancellation of 75 mineral production-sharing agreements as developing them would threaten water supplies. That came after the closure or suspension of 28 of the country’s 41 mines.

“Stocks of nickel are still fairly large, but they could come down pretty fast,” said SP Angel analyst John Meyer. “Indonesia did partially relax the ban, but it may not make a difference to ore supplies.”

Indonesia eased a three-year ban on nickel ore exports in January. However, analysts say the rules accompanying the relaxation on using local smelter capacity to process low-grade ore is a hurdle that some firms may not be able to jump.

Stocks of nickel in LME-approved warehouses stand at around 380,000 tonnes, while those in warehouses monitored by the Shanghai Futures Exchange total 89,000 tonnes. They account for more than 20 percent of global consumption estimated at roughly 2 million tonnes this year.

Elsewhere, copper closed 1.1 percent lower at $6,000 a tonne on profit-taking after a failure to build on a recent rally, which took prices to a 21-month high of $6,204 this week.

Copper’s gains have been fuelled by a strike at BHP Billiton’s Escondida mine in Chile and a lack of permits for exports from Freeport McMoRan’s Grasberg mine in Indonesia.

Also supportive is the expectation of stronger demand in top consumer China, where banks extended 2.03 trillion yuan in net new yuan loans in January, the second-highest monthly tally on record.

“We find that credit demanded by China’s metals intensive ‘old-economy’ has been remarkably strong over the past two months, with bullish implications for Chinese fixed asset investment, PMIs and the commodity complex,” Goldman Sachs analysts said in a note.

“The resulting acceleration in metals demand is expected to push the copper market, as well as other metals such as nickel and zinc into deficit, leading to inventory draws ... and higher prices”, Goldman said.

Aluminium slipped 0.8 percent to $1,897 a tonne, zinc ceded 0.4 percent to $2,858, lead fell by 2.2 percent to $2,277 and tin fell by 1 percent to $19,675.

PRICES

Three month LME copper

Most active ShFE copper

Three month LME aluminium

Most active ShFE aluminium

Three month LME zinc

Most active ShFE zinc

Three month LME lead

Most active ShFE lead

Three month LME nickel

Most active ShFE nickel

Three month LME tin

Most active ShFE tin (Editing by David Evans, Greg Mahlich)

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