Singapore 14/03/2016 - Chinese nickel metal demand is getting a boost from limited availability of high grade nickel pig iron (NPI) and low refined nickel prices, market participants said.
Demand for refined metal has improved since the second half of January after stoppages at NPI producers resulted in tight supply of high-grade NPI, a Beijing-based nickel analyst said.
"The stainless steelmakers are buying nickel metal to mix with low-grade NPI for production," he said.
Increased buying of nickel metal by Chinese stainless steelmakers has reduced Chinese domestic nickel inventory by around 10,000 tonnes since late-January, he estimated.
Late in November last year, eight Chinese nickel metal and NPI producers, including Jinchuan Group, agreed to cut production by at least 20 percent this year, while another 10 large medium- and high-grade NPI producers said in December they will cut output by the same extent in 2016.
Chinese NPI production could fall 14-20 percent year-on-year to 310,000-330,000 tonnes (nickel content) in 2016, analysts estimate.
Chinese stainless steelmakers have typically preferred to use NPI and ferronickel before turning to nickel metal because of their lower prices and the free iron content in the those raw materials.
An official with a domestic nickel smelter also noted an increase in sales to Chinese stainless mills since late last year.
"Sales to stainless mills used to account for 15-20 percent of our total sales. But since November the ratio has increased to around 40 percent," the official said.
Two major stainless steel producers in the country procured significant volumes of domestic and imported nickel metal in January, market sources noted, though the exact volumes could not be confirmed.
Still, the accumulation of stocks by Chinese stainless mills has slowed after London Metal Exchange nickel prices rose.
LME nickel fell more than 40 percent between May last year and mid-February this year, bottoming out at a 13-year low of $7,550. The price has since recovered by around 20 percent and was last at $8,615 per tonne, up $5 on Monday's close.
But the improvement in Chinese nickel metal demand is unlikely to have much effect on nickel prices due to the huge inventories, analysts noted.
Implied global nickel inventories reached 1.1 million tonnes at the end of last year, the equivalent of more than 200 days of global consumption and the highest on record, Wood Mackenzie estimates.
Total visible LME and SHFE inventories also remain high at a combined 488,928 tonnes as of Monday.
"Despite strong refined nickel imports in China, up 131 percent in 2015, the high level of inventories - and probably hidden inventories - has prevented the nickel market from tightening. This could continue this year," FastMarkets analyst Boris Mikanirezai said in a report earlier this month.
(Editing by Mark Shaw)