JPMorgan Chase & Co said that nickel is moving more deeply into contango as a decline in Russian exports suggests metal has been retained as inventory, adding to a global glut.

Contango describes a market in which later dated contracts trade at higher prices than those with nearer dates. Immediate delivery nickel today reached a discount of USD 91 a tonne to the three month contract, heading for the widest closing gap since December 2009, on the London Metal Exchange.

Russian nickel exports dropped 19% to 195,500 tonnes in 2011 even after December's 91% jump. OAO GMK Norilsk Nickel said on January 30th 2012 that output of nickel at its Russian units climbed 0.7% to 237,200 tonnes in 2011.

Mr Michael J Jansen, a London based JPMorgan analyst, said that "The weaker export number reflects a buildup in domestic inventory of refined metal that will continue to dribble out. There is a lot of nickel in the global economy which is yet to be priced into flat price and spreads. However, the market is suspicious of the pending impact, evident in the steadily widening contango."

Nickel for three month delivery rose 1.4% to USD 21,600 a tonne by 5:15 PM on the LME. The metal, used mostly to protect stainless steel from corrosion, is up 15% in 2012 after dropping 24% in 2011.

The nickel market will be in surplus this year by 54,000 tonnes, JPMorgan forecasts. Inventories monitored by the LME climbed 9% to 94,518 tonnes since November 1st 2011. Norilsk expects total output of the metal to gain as much as 3.4% to 305,000 tonnes in 2012 after a 0.8% drop in 2011.

(Sourced from www.bloomberg.net)