Aug. 18 (Bloomberg) -- Nickel posted its fourth consecutive weekly gain on the London Metal Exchange because of a shortage of the metal used in stainless steel.

Stockpiles of nickel monitored by the LME have plunged 83 percent this year because of rising stainless-steel production. Prices of the metal for immediate delivery exceeded benchmark three-month prices by as much as $4,240 a ton as of yesterday, more than twice as much as at the start of the week.

``You've got to feel sorry for buyers,'' Robert Barham, a trader at Ambrian Commodities Ltd. in London, said today by telephone. ``There's not a great deal of nickel around.''

Nickel for delivery in three months gained $300, or 1.1 percent, to $28,000 a metric ton as of 5:01 p.m. London time. The metal has risen 5.2 percent this week, trading at $29,200 on Aug. 16, the highest since at least 1987.

Stockpiles of the metal monitored by the exchange added 36 tons, or 0.6 percent, to 6,156 tons, the exchange said today. That's equal to less than two days of global consumption.

OAO GMK Norilsk Nickel, the world's top producer, said it's ``extremely worried'' after the price surge and blamed consumers for buying too much on the spot, or immediate-delivery, market and cutting purchases in long-term contracts.

``We hope they'll draw lessons from it in 2007,'' Norilsk Deputy General Directory Victor Sprogis said today in an e- mailed statement.

The shortfall in nickel will be 30,000 tons this year, according to Inco Ltd., the world's No. 2 producer. Stainless- steel output will rise 8.6 percent to 26.4 million tons, according to the International Stainless Steel Forum.

`Exceptional' Circumstances

The circumstances of the nickel shortage are so ``exceptional'' that the exchange intervened in the market, LME Chief Executive Officer Simon Heale said yesterday in an interview. ``It's an incredibly tight market.''

The LME, the world's largest metals bourse, imposed a limit on borrowing and lending costs of nickel to $300 a ton a day on Aug. 16. Prior to the restriction, borrowers of nickel for immediate delivery had to pay more than $1,000 a ton, the highest since 1999, according to data compiled by Bloomberg.

Output has declined at nickel producers this year. A strike at Inco's Voisey's Bay mine in Newfoundland has curbed supply since July 28. BHP Billiton, the world's third-largest nickel producer, said production at its Yabulu mine in Australia dropped by a third in the second quarter.

Nickel's 14-day relative strength index rose to 66.36, from 63.49 yesterday. The index peaked at 75.42 Aug. 16, the highest since July 12. A reading above 70 typically indicates a decline is imminent.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net

Last Updated: August 18, 2006 12:09 EDT