Nickel fell for the first session in seven after the London Metal Exchange imposed trading restrictions to ease a shortage of the metal.

The LME, the world's largest metals exchange, yesterday limited the cost at which short-position holders can borrow the metal. The intervention came as plunging stockpiles helped push prices for the metal, which is used in stainless-steel making, to a record. It was the first time the exchange imposed such restriction on nickel since 1988.

"It's very likely that it will destabilize the market and it's very likely that people will stop buying for a while," said Gueorgui Pirinski, a stainless steel analyst at metals consulting company CRU in London.

Nickel for delivery in three months on the LME dropped $400, or 1.4 percent, to $28,700 a metric ton as of 12:29 p.m. The metal surged to $29,200 a ton yesterday, the highest since at least 1987. It has more than doubled this year.

Stockpiles of nickel tracked by the LME dropped 42 tons, or 0.7 percent, to 6,120 tons, the exchange said today in a daily report. The inventory has plunged 83 percent this year.

Nickel supply this year will lag behind demand by 30,000 tons, Inco Ltd., the world's second-largest nickel producer said in July. Stainless-steel output will grow 8.6 percent to 26.4 million tons, the International Stainless Steel Forum said in June.

The LME's measures ensure market participants won't default, the exchange's Chief Executive Officer Simon Heale said in an interview. The circumstances of the nickel shortage are so "exceptional" that the exchange intervened in the market, Heale said. "It's an incredibly tight market," he said.
'Scarcity' of nickel

Acerinox SA, Spain's largest maker of stainless steel, welcomed the restrictions.

"If it avoids speculation it's good," Acerinox spokesman Carlos Lora said today by phone from Madrid. "We think the prices are crazy."

"There's a real scarcity" of nickel, said Friedrich Kernstock, who trades industrial and precious metals at Kernco Metal Trading GmbH in Austria. Nickel producers supplying to his company said there was no physical metal available until the end of October, he said.

Copper also dropped in London, falling $120 to $7,580 a ton. Aluminum declined $17 to $2,484, zinc slipped $50 to $$3,350, lead fell $12 to $1,215 and tin gained $10 to $8,475.