Soaring nickel prices, which hit a record on Tuesday (Aug 22) of $15.286/lb on the London Metal Exchange (LME), will likely stay high for "several years," Numis Securities analyst Simon Toyne told BNamericas.

Only if new projects are able to offset low stocks, and a significant slow down occurs in major world markets, would prices decline, Toyne added.

Cash nickel has averaged $9.013/lb so far this year on the LME. The metal's average price in 2005 was $ 6.683/lb.

According to the analyst, the rising demand for nickel from growing markets in China, Western Europe and the US coupled with dramatically low stocks are the primary causes of the current high nickel trend.

"There has been a big pickup in demand from the stainless steel industry," Toyne said. "Plus supply is quite tight since the strike at (Canadian miner Inco's) Voisey's Bay (nickel mine) in Canada."

"Projects are also taking longer to be brought on stream," he added. "The capex of bringing a nickel project on stream is rising dramatically."

LME stocks have dropped from 36,042t on January 3, the first trading day of 2006, to 6,666t on August 23.

Roughly 70% of the world's nickel production is used to make stainless steel, which will see prices rise along with nickel as the higher costs are passed along directly to stainless steel consumers, Toyne said.

Toyne explained that the price of nickel is incorporated into stainless steel's alloy surcharge, therefore consumers will lose out while stainless steel producers will merely transfer the higher costs.

Flat rolled 7% stainless steel prices are expected to fluctuate between $1.6868/lb and $1.8568/lb in the US during September, according to Metalprices.com.

As for substitution, stainless steel can be replaced by galvanized steel, an alloy that uses zinc and is also non-corrosive, but "you don't hear much talk of substitution for galvanized steel," Toyne said.

Nickel fell slightly to $15.105/lb on the LME Wednesday from Tuesday's record.