Nickel pig iron makers in China, the world’s largest consumer of nickel, have started to idle capacity as prices and demand weaken amid the nation’s curbs on property development, according to a state-owned researcher.
Production of the low-cost substitute for the refined metal dropped to between 14,000 and 15,000 metric tons in April from a record 17,000 tons in March, said Xu Aidong, senior nickel analyst at Beijing Antaike Information Development Co. There would be further falls in output in May and this month, Xu said.
About two-thirds of global nickel production is used to make stainless steel, and Antaike’s assessment adds to signs that China’s drive to prevent a property bubble is helping to hurt demand for commodities used in construction. Refined-nickel futures in London have tumbled into a bear market since April.
“Output of nickel pig iron will fall further in May and June as demand from the stainless-steel industry weakens,” Xu said on June 11. “We often schedule visits to plants and have been told by some producers not to go because they have either suspended output or are carrying out their annual maintenance.”
Nickel futures on the London Metal Exchange slumped 29 percent from a 23-month high of $27,595 a ton on April 16 to the close on June 11, hurt by China’s property moves and Europe’s debt crisis. The contract traded today at $19,875 a ton at 3:17 p.m. in Singapore. A bear market is typically defined as a fall of at least 20 percent in an asset or market.
‘All in Agreement’
Some stainless-steel mills in China have already started cutting production after a slump in prices, according to Wang Chongfeng, a Shanghai Metals Market analyst. Prices of nickel plate in Changjiang, Shanghai’s biggest cash market, were about 152,500 yuan a ton on June 11, 22 percent less than a two-year high in April. China’s financial markets are closed today.
“We’re all in agreement that output in May and June will be lower,” said Wang, referring to the production of nickel pig iron. Output was a record 20,000 tons in April, Wang estimated.
In addition to industry-specific measures such as requirements for larger down-payments for some homes, the government on May 2 raised banks’ reserve requirements for the third time this year to contain overheating risks. Zinc smelters in China have idled as much as 8.8 percent of capacity amid the property curbs, Shanghai Metals Market said earlier this month.
Baoshan Iron & Steel Co. is “not very optimistic” that stainless-steel consumption growth in China will match last year, China’s second-biggest stainless steelmaker said May 26.
China’s stainless-steel output was 2.8 million tons in the first quarter, according to Antaike, 27 percent more than in the same period in 2009 and 36 percent more than in 2008.
‘Very High Output’
“Stainless-steel production will moderate in the second half, following very high output in the first, which was matched by record nickel pig iron production,” said Wang Xiaoli, an analyst at Citic Futures Co. “The slow-demand season in June and July for stainless steel and nickel will continue to put downward pressure on prices of both materials.”
The price of the widely-used type 304 stainless-steel sheet in Shanghai dropped 10 percent in May, according to data from Metal Bulletin, an industry publication. It reached $3,282.50 a ton at the end of April, a level not seen since 2008.
Refined-nickel output in China grew 26 percent to 17,300 tons in May from a year ago, the National Bureau of Statistics said on June 11. That’s 58 percent higher than in May 2008.
“Refined producers are unlikely to cut production as they tend to be big enterprises that have the ability to withstand the price decline,” Antaike’s Xu said.
To contact the editor responsible for this story: James Poole at jpoole4@Bloomberg.net