Chinese mills that rely on low-grade ore from Indonesia to produce nickel pig iron, a substitute for the refined metal, have built stockpiles to last about six months, a Bloomberg News survey shows.
Inventory at factory warehouses and ports is almost 29 million metric tons, enough to sustain output at last year’s pace until July, according to the average of nine projections from smelters, miners, traders and analysts based in China. That compares with about 32 million tons estimated by Macquarie Group Ltd. Small and medium-sized plants have enough material to last three to four months, the respondents said.
The global nickel market may swing into a deficit next year after Indonesia, the biggest producer of the mined metal, restricted shipments starting Jan. 12, Macquarie and Barclays Plc predict. Chinese NPI accounts for about 25 percent of world nickel supply, according to Macquarie.
“NPI will go up if prices of ore and refined metal surge,” said Zhu Renguo, a Shanghai-based purchasing manager with Jiangsu Baotong Nickel Industry Co., who has worked in the industry for more than 30 years. “We are pretty confident that we can transfer higher costs to the downstream industry.”
The metal, used in corrosion resistance in stainless steel, snapped a five-day rally today, falling as much as 0.8 percent to $14,575 a metric ton. Futures for delivery in three months on the London Metal Exchange traded at $14,675 at 2:46 p.m. Shanghai time.
“The pause in the nickel price rally shows that the market is still uncertain about the level of nickel ore inventories in China and the outlook on Indonesia’s trade policies,” said Sijin Cheng, a Singapore-based analyst at Barclays Plc.
Nickel may reach $17,000 a ton this quarter, according to Citigroup Inc. It slumped 19 percent in 2013, the most among the six industrial metals in London, amid rising NPI output in China and swelling stockpiles in warehouses monitored by the LME.
“With an Indonesian nickel ore ban now implemented, this confirms the potential for Chinese nickel pig iron output to peak, helping to alleviate the current supply overhang,” Macquarie analysts led by Jim Lennon said in a note yesterday.
China’s NPI production may be about 481,000 tons this year, said eight of the nine respondents in the survey. That’s equal to figures from Beijing Antaike Information Development Co. for 2013 output, which surged 34 percent from the previous year.
China, the biggest metals user, expanded output of the substitute from 3,000 tons in 2005 to meet its need for stainless steel after costs for pure nickel reached a record $51,800 in 2007.
— With assistance by Alfred Cang