Singapore 20/06/2016 - Chinese stainless steel output growth is stronger than expected so far this year despite analysts having largely expected at the start of the year no growth or contraction in 2016.
Growth of five percent in the first half is possible in China's stainless steel output, Liu Yujing, stainless steel analyst at Chinese metals research firm Beijing Antaike, forecast.
"The market was rather pessimistic before Chinese New Year in February. But after the strong demand seen in the stainless sector in March till May, the market is no longer so pessimistic," she told FastMarkets.
While expectations are for stainless steel demand to slow as the industry enters its traditional summer lull in June-July, some market participants are cautiously optimistic following the recent increase in Chinese stainless steel prices.
After falling in May, Chinese domestic 304 cold rolled stainless prices and offer prices for the same product in the Asian region have started to rise over the past week, sources said.
The consensus for now seems to be for China’s full-year stainless steel production growth to be positive this year. China's largest stainless steel producer, Tsingshan Holding Group, expects to lift production by 3.8 percent to around 5.5 million tonnes this year.
"300-series stainless steel producers remain profitable in the first half of this year given the low-nickel-price environment," an official from Tsingshan said. 300-series is a high-nickel stainless grade that typically contains at least eight percent nickel.
Chinese stainless steel production growth is likely to remain positive for this year but would struggle to exceed four percent for the full year, Liu said.
"The global macroeconomic picture is not so positive for the whole year. There should be some stable growth in the second half of this year for Chinese stainless steel but it is unlikely to have very strong growth," she said.
NICKEL DEMAND
Better-than-expected Chinese stainless steel production and production cuts among local nickel pig iron (NPI) producers,have boosted domestic nickel demand, sources said.
"We had expected nickel sales from mills to slow towards June but it remained strong in May and so far in June," a Chinese nickel smelter source said.
Nickel demand in China is being supported by the strong rise in the production of 300-series stainless in the first half, he added, estimating that production of this grade probably is probably 7-8 percent higher so far this year compared with the first half of last year.
The 300-series grade remains popular among end-users because its current price is still considered low, he said.
Market participants also noted limited availability of ferro-nickel and nickel scrap availability in the global market.
"We heard from a few Asian stainless mills that they are having problems sourcing ferro-nickel," a Shanghai-based trader said. "But we think it's more of an issue of price. Suppliers want prices way higher than what buyers are willing to pay for.”
Japanese stainless steel mills are also struggling to source nickel scrap because they are unwilling to pay higher prices than their US counterparts, a Japanese trader said.
Earlier this month, nickel briquette premiums in Europe rose to their highest since November 2014 - the tight supply of ferro- nickel and nickel scrap forced users seeking cheaper material to move up the purity chain.
(Editing by Mark Shaw)