Nickel tumbles 5-percent to 2-year low on weak demand

By Julie Crust and David Sheppard

LONDON (Reuters) - Nickel fell to a two-year low below $19,000 a tonne on Thursday on weakening demand from stainless steel mills, while copper eased on growth fears.

Nickel for three-month delivery fell more than 5 percent to $18,875 a tonne, its lowest since June 2006, before recovering to trade at $19,050 at 2:31 p.m. GMT (10:31 a.m. EDT).

On Wednesday it closed at $20,000 a tonne, after falling 2.7 percent on weaker demand from stainless steel producers, which account for about two thirds of global nickel demand.

"There has been increasing evidence of weak demand from the stainless steel sector in the third quarter," Calyon analyst Robin Bhar said.

"$20,000 a tonne was viewed as a firm floor for prices. Below here we could see nickel pig iron producers in China cutting production which could be a regulatory mechanism for the market."

Stocks of nickel in LME warehouses rose 180 tonnes to 43,368, although they have fallen by about 17 percent over the last three months.

"We will see how long the decline in nickel stocks will last," Simon Toyne, analyst at Numis Securities, said.

"Markets are still soft for stainless steel with demand getting weaker in Europe."

Stainless steel maker Outokumpu (OUT1V.HE) reported a lower-than-expected second-quarter operating profit, hit by softening demand in Europe. "We are in a seasonal slowdown so I expect some recovery in the fourth quarter, but as you go into next year I am a bit worried given the macro backdrop," Toyne added.

DEMAND FEARS

Copper for delivery in three months fell to $7,950 a tonne from $8,080 at the close on Wednesday.

Weaker economic growth has reduced demand for industrial metals, with copper -- a key gauge for economic activity -- mainly used in the construction and power industries.

Rising stocks of copper in LME warehouses, up about 20 percent since the beginning of May, have reinforced selling pressure, traders said.

"Sentiment for commodities is low at the moment," an LME floor dealer said. "Copper looks like it could go down to $7,800 and aluminum could go down towards $2,950 before recovering."

Negative sentiment was partly offset as the dollar pared early gains against the euro after U.S. government data showing weekly jobless claims rose more than expected in the latest week.