Reuters reported that Nickel prices may see a short term lift over the next several months due to a seasonal rise in demand for stainless steel, but next year's outlook is burdened by another market surplus.

Nickel, a component in stainless steel, has already seen benchmark prices on the London Metal Exchange shake off a weak performance this year, running ahead of other metals in recent weeks.

This may persist into early next year, but prices will soon be overwhelmed by output from major new mines gearing up and a surge in Chinese pig iron output fuelled by cheap Asian ore.

Mr Nic Brown head of commodities research at Natixis in London said that "There could be a little bit of seasonal pick up, but I struggle to see how nickel prices can improve significantly next year. You are going to get substantial amounts of cheap nickel ore coming from both Indonesia and the Philippines, as things currently stand, on top of the additional supply from some of these big nickel projects around the world."

So far this year, three month nickel is the worst performer of six LME base metals, dropping about 8%, burdened by high inventories and a market surplus. It has lost two-thirds of its value since hitting a peak of USD 51,800 a tonne in May 2007.

But over the past two weeks, nickel has been the strongest, outperforming its peers by over six percent.

Traders said that the current strength is mainly due to some investors buying back short positions, but analyst Daniel Brebner at Deutsche Bank in London said seasonal factors in stainless steel may also bolster prices.

Over the past four years,stainless steel prices in Europe have risen around the beginning of the year, due to seasonal buying and this has corresponded to higher nickel prices in December and January.

Source - Reuters