Nickel surges after Phelps move

LONDON: Nickel gained 2.1% in London after Phelps Dodge announced a $40bn buyout for two Canadian miners on Monday, suggesting that the company believes metals prices will stay high in the longer term, analysts said.

Phelps Dodge said it would acquire Inco and Falconbridge in a deal to form the world’s largest nickel and second largest copper producer. From the price they are prepared to pay, you have to infer that Phelps Dodge believe that (metals) prices will stay strong. It’s the only way they can justify these sorts of numbers,” a London mining analyst said.

By afternoon, LME nickel prices were $400 higher at $19,600 a tonne. Copper for delivery in three months was at $6,821 a tonne, up $41 from Friday but $2,000 below May’s record peak.

Metals prices rocketed to record highs in May, in part due to strong buying from investment funds, but also because of the laggardly response by producers to increase output.

ABN Amro analyst Tim Huff said of the Phelps deal: “This is a very smart move. By setting the bid price for Inco, they don’t complicate Inco’s bid for Falconbridge.

That pins down Inco’s share price and revalues Inco’s bid for Falconbridge.” Two rivals, Inco and Swiss-based Xstrata, have been engaged in a bidding war for Falconbridge, and the Phelps Dodge move gives the Inco bid a significant edge.

Huff added that Phelps Dodge may have been more interested in securing Falconbridge’s copper assets than Inco’s nickel production.

Markets, meanwhile, were thin ahead of a US Federal Reserve meeting later this week. Analysts expect a quarter of a percentage point rise in US interest rates to 5.25%, but precious metals dealers noted speculation the Fed might increase rates by 50 basis points.

Aluminium was up $23 at $2,472 a tonne from the London close, while zinc was up $60 at $2,920.