Dow Jones reported that Chinese nickel pig iron producers are reducing output tracking thinner demand from stainless steel makers due to lower refined nickel prices amid persistent worries over the euro zone debt crisis.
However, supply cuts of nickel pig iron, a cheap substitute for refined nickel and a key ingredient in stainless steel making in China, may not shore up global nickel prices as European macroeconomic weakness will cap any rise.
China is the world's top nickel consumer and stainless steel makers account for 80% of its consumption.
The general manager of a laterite ore supplier in Qingdao said that "Demand from the stainless steel sector is on the downtrend since August. Coupled with tight credit conditions, it has forced some of our clients to reduce production and cut losses."
Laterite ore is used to make nickel pig iron and is often imported from the Philippines and Indonesia.
Ms Xu Aidong, chief nickel analyst at state owned metals consultancy Beijing Antaike, said that "Around a third of the producers have idled capacity as nickel pig iron loses its price advantage when nickel prices fall, since stainless steel makers will naturally prefer refined nickel."
Three month nickel on the London Metal Exchange has shed 32% since August, falling below a key psychological level of USD 18,000 a tonne, with risk off sentiment keeping investors away from assets like metals. Chinese stainless steel makers' bearish outlook is adding to downward pressure.
Ms Xu said that Beijing Antaike plans to lower its forecast for Chinese nickel demand growth this year and in 2012 due to weakness in the stainless steel sector, but she didn't elaborate.
Ms Xu said that current projections show Chinese nickel demand rising by 16% to 598,000 tons this year and by 8.7% to 650,000 tons next year. She added that "Things haven't been really good for us recently and we don't expect it to get any better by the year end. For next year, we're even more bearish because of all this uncertainty coming from Europe."
Baoshan Iron is China's second largest stainless steel maker by output and has a stainless steel capacity of 1.5 million tonnes.
The manager also said large stainless steel makers, such as Baoshan Iron and Taiyuan Iron & Steel (Group) Co, have yet to cut back production but are changing their product structure to focus more on domestic demand.
(Sourced from www.dowjones.com)
