Volatility in the London Metal Exchange nickel market is to be expected given the backdrop of supply and demand fundamentals, BHP Billiton Ltd.'s (BHP) group president, non-ferrous, Marius Kloppers.

Kloppers said on a conference call for the company's 2005-06 results that the current high nickel prices, which peaked at an all-time contract high overnight of $30,000 a metric ton, were no surprise.

He added that despite the intervention of the LME in the nickel market to maintain an orderly situation, BHP Billiton has faith that the market is working effectively.

Pointing to the relationship between stocks and prices, Kloppers added that what is less apparent is price formation is more difficult and volatility is to be expected under conditions of high prices and very low inventories.

LME nickel stocks are currently at 6,666 tons, but because 70.66% of nickel is on cancelled warrant – indicating it's accounted for and likely to be drawn down – just 1,956 tons are currently available.

"It's no surprise that from the demand perspective, nickel is very favorable and continues to be," Kloppers added, pointing to strong Chinese consumption growth.

Nothing has changed to the supply side over the last couple of years for BHP Billiton to revise its view that the market is set to stay tight, he said.

Aug. 16 the LME imposed a limit to the daily backwardation, meaning those with short positions that cannot make physical deliveries can defer it by paying $300/ton a day instead of defaulting.

BHP Billiton owns the QNI Yabulu nickel refinery and the Nickel West operations in Australia, as well as the Cerro Matoso ferro-nickel producer in Columbia. It's also developing the Ravensthorpe nickel project in Western Australia.