U.S. fund Touradji bets on LME nickel - traders

Date: Wednesday, March 31, 2010
Author: Reuters

New-York based hedge fund Touradji Capital Management is betting on improved demand for nickel, helping the material used in stainless steel outperform other base metals this year, traders and market sources said.

Benchmark nickel CMNI3 on the London Metal Exchange has gained more than 25 percent so far this year to around $24,000 a tonne on Tuesday -- making it the best performing base metal. By contrast, benchmark base metal copper CMCU3 has gained five percent so far this year.

"It's Touradji," a Europe-based hedge fund said, when asked who was behind the price rally in the nickel market.

Touradji is a commodities-focused hedge fund manager that was founded in 2005 by managing partner Paul Touradji. The fund had more than $1.5 billion under management at the start of the year, according to one investor.

A Touradji spokesman declined to comment on the fund's position in the nickel market.

Accompanying nickel's price rise, the contango or discount between the cash and three-month contracts MNI0-3 narrowed significantly to around $18 a tonne last week compared with levels around $80 a tonne at the beginning of March. A narrower contango suggests tighter supplies near-term.

By Tuesday the spread had widened to about $35 a tonne.

Worries about near term supplies have arisen because of one dominant position that is holding between 50 to 80 percent of LME stock warrants and cash contracts, according to LME data. <LME/WC>

"(People) are talking about Touradji ... who is not averse to having a go," a metal trader said. "But the thing is if anything like this happens ... people blame Touradji, it's one of the names that always pops up."

Dominant positions arise regularly on the London Metal Exchange and are not against LME rules.

The London Metal Exchange declined to comment on the long position in the nickel market. It has rules in place to limit dominant position holders' ability to profit. www.lme.com/5864.asp

Other traders, while not naming Touradji, said that a New York based hedge fund was betting on improving demand from stainless steel mills, which account for two-thirds of global demand estimated at about 1.4 million tonnes this year.

That is a rise of about 8 percent from 2009 levels, according to a Reuters survey, which also showed the market this year could see a nickel deficit of 23,500 tonnes. [MET/POLL]

That compares with a surplus of 15,000 tonnes in the January Reuters survey. COMMODITYPOLL01

"Some people got caught short and the latest leg-up was partly because of them covering those positions," another trader said.

DEFICIT

Industry consultants CRU Group earlier this month said the nickel market will fall into deficit this year for the first time in four years. [ID:nLDE62H1BU]

Stainless steel production is up about 50 percent year-on-year, Macquarie analyst Jim Lennon told Reuters in a recent interview. [ID:nLDE62G2M2]

Stronger demand can be seen in stocks of nickel in LME warehouses. They have fallen more than 7,000 tonnes since Feb. 26 to 156,090, or 300 days of consumption. Nickel stocks hit a record high at 166,476 tonnes on Feb. 5.

Goldman Sachs said in a recent note it was looking for an opportunity to short nickel. "The current nickel tightness may worsen in the coming weeks, potentially pushing nickel prices through $25,000 a tonne.

"However, we maintain that the fundamental drivers for recent nickel tightness in particular are unlikely to be sustained beyond the near term."

Goldman expects nickel prices to fall below $20,000 a tonne on a three to six month horizon.