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Nickel Supply to Swing Back to Surplus, Sumitomo Metal

Nickel supply will outpace demand this year as new projects start and demand growth in China slows after the government tightened monetary policies to curb inflation, said Sumitomo Metal Mining Co., Japan’s top producer.

World supply of the metal, used for corrosion resistance in stainless steel, will exceed demand by 24,000 metric tons from a deficit of 57,000 tons in 2010, Toru Higo, general manager of the Tokyo-based company’s nickel sales and raw material department, said yesterday in an interview. Last year demand outstripped supply for the first time since 2006, he said.

Nickel was the second-best performer on the London Metal Exchange last year, gaining 34 percent as demand from China for stainless steel in homes and buildings increased. Prices also climbed as governments spent trillions of dollars and kept interest rates low to bolster economies following the worst global recession since World War II. The metal nearly tripled in value from 2008 as investors lost confidence in currencies.

“Global output may expand as some new projects start, while China’s demand growth will slow following tightening monetary policies and property regulation,” Higo said.

China is shifting to a “prudent” monetary policy to rein in liquidity, combat accelerating inflation and limit the risk of asset bubbles, the government said in December.

The country ordered banks to set aside more reserves six times and boosted interest rates twice in 2010 after record gains in lending and property prices. The country’s consumer prices jumped 5.1 percent in November, the most in 28 months.

New Projects

New projects include Vale SA’s Goro mine in New Caledonia and Sherritt International Corp. of Canada’s Ambatovy nickel project in Madagascar, he said. Goro will produce 20,000 tons this year and Ambatovy will add 10,000 tons, he said. Sumitomo Metal Mining has an 11 percent stake in the Goro mine.

Nickel supply will outpace demand this year by 10,000 tons, compared with a supply shortage of 80,000 tons in 2010, Macquarie Bank Ltd. said in a December report. Deutsche Bank AG projects demand to surpass supply by 5,200 tons in 2011 versus a shortage of 37,700 tons in 2010, the bank said on Jan. 11.

“The expected surplus amount will have little impact on nickel prices if there’s any delay in the start of new projects amid demand recovery in major economies, including the U.S.,” Hwang Il Doo, a senior metal trader at Korea Exchange Bank Futures Co. in Seoul, said today.

Nickel for three-month delivery on the LME climbed as much as 0.8 percent to $25,999 a ton, the highest level since May 4, before trading at $25,950 a ton at 4 p.m. Tokyo time.

China Demand

World nickel output is expected to increase 12 percent to 1,585,000 tons in 2011, while consumption may rise 6.5 percent to 1,561,000 tons, Sumitomo’s Higo said. China’s output may grow to 325,000 tons in 2011, including nickel pig iron, from 315,000 tons in 2010, while the country’s demand will likely rise to 590,000 tons from 540,000 tons, he said.

China became the world’s top nickel producer in 2010, surpassing Russia, which produced 242,000 tons, according to Sumitomo Metal Mining data.

Global stainless steel production may rise to 32 million tons this year from 31 million tons in 2010, he said. China’s stainless steel output is expected to grow 6.2 percent this year to 12 million tons, he said.

“Stainless steel output growth in China will slow after jumping 25 percent last year,” he said.

Sumitomo Production

Sumitomo plans to boost refined nickel production capacity at its Niihama refinery in Ehime prefecture, in western Japan, to 65,000 tons a year by 2013 from 41,000 tons, with the completion of its $1.3 billion Taganito nickel and cobalt project in the Philippines.

In Japan, the yen’s strength against the dollar and the end of the government’s car-subsidy program may cool domestic nickel consumption, Higo said.

“Given the outlook for market fundamentals, current prices appear to be a bit too high,” Higo said. Higher nickel prices may drive stainless producers to find alternatives such as chrome or manganese, he said.

To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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