The nickel market may swing into a greater deficit than expected this year because of supply disruptions and greater Chinese demand, which could boost prices, said Sumitomo Metal Mining Co., the biggest producer in Japan.

World demand may exceed supply by 40,000 metric tons this year, up from the company's forecast in April of 36,000 tons, Toru Higo, general manager of the Tokyo-based company's nickel sales and raw material department, said yesterday in an interview. This would be the first deficit since 2006, after a surplus of 27,000 tons last year, he said.

The price of nickel has tumbled 28 percent to $19,550 a ton after touching a two-year high on April 16, as concern that Europe's debt crisis and Chinese steps to curb property prices will hurt global growth, reducing demand for stainless steel in homes and buildings. About two-thirds of nickel production is used to increase corrosion resistance in stainless steel.

"A longer-than-expected supply disruption may help the deficit widen further," Higo said, referring to a labor dispute at Vale SA, the fourth-largest producer. Stockpiles tracked by the London Metal Exchange plunged 28 percent from their peak in February because of the disruption, he said.

Vale workers at two Ontario, Canada, plants voted to end their yearlong strike, the United Steelworkers union said July 8, closing the longest industrial dispute in the company's 67-year history. Vale's Sudbury smelter has operated at 50 percent capacity since January.

Eoin Treacy's view Industrial metals have taken a beating over the last few months as concerns about Chinese tightening, the European sovereign and banking crisis and the potential for a double dip recession in the USA have weighed on investors. Sentiment remains precarious but prices have begun to steady along with those of most developed country stock markets and the industrial metals sector has room for some additional upside.

Nickel fell sharply from its April high and pulled back into the prior range below $20,000 where it has steadied. It is now testing that psychological level and the overhead 200-day MA. A sustained move back above $20,000 is needed to indicate a return to demand dominance beyond the current bounce.

Aluminium, copper, zinc and lead have all had similar abrupt declines which have interrupted the consistency of their medium-term uptrends. All remain below their 200-day moving averages, zinc and lead particularly so. However, they have all firmed of late and potential exists for further short covering and rally towards the mean, defined by the MA. They will need to sustain moves above their MAs and break the three-month progressions of lower rally highs to indicate demand has regained the upper hand.

Tin remains the clear leader in the sector and is the only one of the main industrial metals to trade above its 200-day MA. It found support above $15,000 in June and continues to range with an upward bias back towards the April highs. A sustained move below $16,000 would be required to question scope for continued higher to lateral ranging.