May 24 (Bloomberg) -- Nickel jumped to a four-week high in London after foreign workers at Inco Ltd.'s mine on South Sulawesi island in Indonesia received death threats, raising concerns about supplies of the metal as inventories stand at two-year lows.

Hundreds of Indonesian policemen were sent to guard the mine after the threats, which may be linked to Islamic militants, the Australian Broadcasting Corp. reported. Toronto-based Inco, the world's second-largest nickel miner, offered expatriates the option to leave.

``It's already a very tight market, there's no supply of any significance, and provided we still have economic growth, that will spur demand,'' Robin Bhar, analyst at Standard Bank in London, said in a telephone interview.

Inco's PT International Nickel Indonesia unit produces about 90 percent of the country's nickel. Indonesia's output of the metal, used to make stainless steel, rose 44 percent last year to 9,300 tons, or 0.8 percent of the world total, according to CRU International, a London-based industry consultant.

Nickel for delivery in three months rose $275, or 2.4 percent, to $11,850 a metric ton on the London Metal Exchange at 11:55 a.m. It earlier reached $12,000, the highest since April 26.

Inventories Slump

Inventories of the metal in LME-monitored warehouses fell for the sixth straight day to 12,636 tons, the lowest since June 2001. CRU forecasts total consumption will rise by 8.2 percent to 337,200 tons this year, leaving a deficit of 21,000 tons.

Rajeshanagara Sutedja, Inco's government relations official in Jakarta, wouldn't say how the death threats against the company's Indonesian unit were made, or where they came from. National police spokesman Paiman said he wasn't aware of the report.

``The company will help expatriates relocate to a safer place for a temporary period,'' Sutedja said in a phone interview. Exxon Mobil Corp. last year shut gas fields in the Indonesian province of Aceh from March to September because of separatist attacks.

Indonesia is also home to Freeport-McMoRan Copper & Gold Inc.'s Grasberg copper mine, the world's second-largest. The mine's production is rebuilding after a landslide killed eight workers in October, New Orleans-based Freeport-McMoRan said.

Nickel's Decline

Nickel prices more than doubled last year as stainless-steel production picked up, in part because of surging demand in China. China's output of stainless steel, used in household appliances, cutlery and medical instruments, climbed 62 percent last year to 1.4 million tons, CRU said. Global output was 22 million tons.

Prices peaked at a 14-year high of $17,700 a ton in January. They have fallen more than 30 percent since as OAO GMK Norilsk Nickel boosts sales and Inco recovers from last year's three-month strike at its operations in Sudbury, Ontario.

Nickel output is expected to lag demand until 2006, when Inco is scheduled to start up mines in Newfoundland and the South Pacific island of New Caledonia.

Lead for delivery in three months rose $11 to a seven-week high of $815 a ton. Demand for car batteries that use the metal has increased, in part because of growth in vehicle purchases in China. Stockpiles stand at 13-year lows.

Copper was up $2 at $2,665 and aluminum added $5.50 to $1,648. Zinc gained $1 to $1,048 and tin rose $50 to $9,100.

To contact the reporter on this story: Matthew Craze in London at at mcraze@bloomberg.net. Wahyudi Soeriaatmadja in Jakarta at wahyudi@bloomberg.net.

Last Updated: May 24, 2004 06:57 EDT