Singapore 07/04/2016 - Market participants reported improved demand for nickel metal and ferronickel from Chinese stainless steel producers but sources in the stainless sector remain cautious about demand for their products over the next three months.
"Demand for nickel should still be good in the second quarter. China's stainless steel production should rise in the second quarter compared to the first quarter due to new capacity coming on stream,” said a Beijing-based nickel producer.
Chinese nickel metal demand has improved since the start of this year due to limited availability of high grade nickel pig iron (NPI) and low refined nickel prices. And premiums for ferronickel have surged in China due to a tight spot market.
Some traders reported completed deals for ferronickel with nickel content of 20-40 percent at around $100 CIF Shanghai while offers were as high as $200-250 this week. Ferronickel shipped from Europe to China had traded at a discount or at parity in 2015.
China's largest nickel producer, Jinchuan Group, also noted stronger nickel metal demand from Chinese stainless steelmakers in March relative to January-February.
Chinese stainless steel prices have recovered slightly and orders have picked up after the Chinese New Year holiday in February, local stainless steel sources told FastMarkets. But most remain circumspect about the second-quarter prospects although April-May is typically the peak period for demand in the industry.
"Customers are keener to place orders now… but we are maintaining our production for the time being as we want to see how demand pans out later in the month," said an official with a major state-owned stainless mill that is operating at half of its capacity.
Stainless steelmakers are not rushing to lift production yet because they are still cautious, a Hong Kong-based trader said.
"The stainless market definitely seems better now compared to in February when the nickel price fell to a low. But I wouldn't say the market is very confident about demand in the second quarter," he added.
After falling to a 13-year low of $7,550 per tonne in February, three-month LME nickel recovered by around 25 percent early in March. But it has since trended lower and was last at $8,525 on Thursday, down $65 on Wednesday’s close.
"The improvement in demand is not enough to lift nickel prices. Global nickel supply remains huge," a Singapore-based nickel analyst said.
China is the world's largest stainless steelmaker. The country's falling production rate, lacklustre stainless steel demand globally and the huge nickel stockpile have largely been blamed for nickel's poor performance since last year.
In December, the China Nonferrous Metals Industry Association said it expects global nickel metal prices to remain low in 2016 because Chinese stainless steel production and consumption are likely to decline in this year due to "supply-side reforms" that will gradually eliminate capacities in the industry.
China's crude stainless steel production fell 0.6 percent to 21.56 million tonnes last year.
The stainless steel industry is the largest user of nickel, accounting for 60-70 percent of consumption.
(Additional reporting by Meimei Qin)