Nickel rebounded from a two year low in London as stockpiles of the metal used in stainless steel declined to the smallest in eight months, indicating supply is slowing.

Inventories tracked by the London Metal Exchange dropped by 6% in July to 43,728 tonne the lowest since November 23rd 2007.

Nickel for delivery in three months increased USD 150 or 0.7% to USD 20,550 a tonne.

BHP Billiton Ltd this month shut its Kalgoorlie refinery in Western Australia through June 2009, cutting sales of the metal by 25,000 tonne or about 57% of existing LME stockpiles.

Mr Max Layton an analyst at Macquarie Ltd in London said that “You probably started to see the impact from supply disruption in Western Australia. It may be short lived and overall we see a small surplus this year.''

The metal is headed for a second consecutive annual drop, after last year's 21% decline as stainless steel mills resorted to products containing less nickel. Mr Charles Cooper an analyst at Evolution Securities Ltd said that prices may have to fall to about USD 15,000 a tonne to lure back consumers.