London (Platts)--6Sep2010/720 am EDT/1120 GMT

Physical nickel premiums in Europe held steady in the first week of September despite an increase in demand for the alloy metal as most participants returned to the market. "Most of the market players are back and working," one UK-based trader said. But so far the increase in activity has failed to shake the premiums. "People are testing the waters to see the flow. It's been flat. No increase, no decrease," one European trader said. The Platts assessment of premiums for cut cathodes and briquettes held at $400-450/mt plus London Metal Exchange cash, in-warehouse Rotterdam, last week while full-plate premiums were at $125-175/mt, same basis. While August was a quiet month, "it looks like it's picking up again," the trader said. "There is more spot business now which is good. Still not great volumes." What is important, the source noted, is that demand has been coming from different sources -- automakers, long producers or specialty steel products. And the shortage of scrap material is helping primary nickel demand too. Customers have been requesting material for very prompt delivery -- in two-three days, but some suppliers might be short of material, a second Europe-based trader pointed out. "There must be mismatching of supply and demand. There are not many people able to offer material," the trader noted, adding that he has seen premiums rise. A nickel supplier agreed, having been able to meet a request for delivery in a few hours after a customer was unable to get hold of nickel for prompt delivery from another party. The source admitted, however, that premiums have pretty much been unchanged, "no fireworks." But the first European trader was of different view. "We don't see tightness as before. We have more competitors so people are able to offer material," he said. But if demand continues at the same level for the next few weeks, the market should again see a tightness in the supply of cut cathodes and briquettes. "It's a question of demand," he added. STAINLESS STEEL DEMAND IN Q4 UNCERTAIN But some industry participants are uncertain whether demand for stainless steel, the key source of nickel demand, will be strong enough in the fourth quarter. "There is definitely uncertainty about the European stainless market," Societe Generale analyst David Wilson said. "Although the manufacturing in northern Europe has been looking relatively OK ... It's still a difficult market for stainless steel producers here [in Europe]." The biggest story is not in Europe, but elsewhere, Wilson said. "The Chinese are gearing up to expand stainless [steel] production coming into Q4. So the big stainless [steel] producers in China are aggressively bidding to secure ferrochrome for September delivery, upping the prices," he said. The analyst remains optimistic about the direction for the nickel price. "Other end-users in Europe have been pretty robust. Sales for plating and superalloy have been pretty good," he said. Nickel prices were boosted this week by news that the Chinese government wants to scale down the country's nickel pig iron production, which should be supportive to nickel imports for China. Nickel for delivery in three months closed at $21,600/mt Friday. --Agnieszka Troszkiewicz, a_troszkiewicz@platts.com Similar stories appear in Metals Week See more information at http://www.platts.com/Products/metalsweek/