Singapore 19/07/2016 - Nickel prices which are already boosted by mining disruptions in the Philippines are expected to trek higher on production stoppages among Chinese nickel pig iron (NPI) producers in Inner Mongolia.
Some Chinese NPI producers in Ulanqab in northern Inner Mongolia have stopped production and this has affected the output of high grade NPI, state-owned metals research firm Beijing Antaike said in a report late on Monday.
The stoppages are believed to have started this week following inspections by the country’s environmental protection bureau (EPB) in six provinces, sources told FastMarkets.
Ulanqab is a major NPI production base in the country, with high-grade NPI capacity of around 77,000 tonnes per month (nickel contained), according to Chinese metals research firm Shanghai Metals Market (SMM). NPI production at Ulanqab was at around 40,000 tonnes in June.
It is hard to quantify the production that will be affected in the stoppage as it depends on how fast the affected smelters are able to meet standards set by the EPB, Liao Rongrong, a nickel analyst at SMM told FastMarkets.
China’s ministry of environmental protection said in two separate notices last Friday and on Monday that it had sent inspection teams to Inner Mongolia, Jiangxi, Guangxi, Jiangsu, Yunnan and Henan.
The inspections, while not targeted at any industry in particular, is expected to affect mainly NPI smelters in Inner Mongolia whose environmental standards are seen as not as up to par compared to producers in other provinces or major producers like Tsingshan Group, sources said.
The latest NPI production disruptions in Inner Mongolia has further boosted nickel market sentiment - prices are already supported due to an ongoing mine audit in the Philippines which market participants fear could affect the country’s nickel ore exports.
The SHFE September nickel price jumped 1,060 yuan per tonne to 81,900 yuan so far on Tuesday.
Worries over production cuts among domestic NPI producers are providing upside strength to SHFE nickel, said China’s Ruida Futures on Tuesday morning. The Xiamen-headquartered futures brokerage's target price for SHFE nickel is at 84,000 yuan.
The London Metal Exchange three-month nickel price hit a $10,660 per tonne earlier today on Select, just $10 shy of the eight-an-a-half month high of $10,670 reached on July 13. It was last at $10,440, down $105 from the previous day’s close.
An LME nickel price of $10,700 is within target this week, said Liao.
LOW NICKEL ORE STOCKS
Nickel ore inventories at Chinese main ports are at low levels but Chinese NPI production has tentatively yet to be significantly affected by the contracting supply of nickel ore, sources said.
There are still around two-months’ worth of nickel ore at around 13 million tonnes at Chinese ports, a Guangzhou-based nickel analyst estimated.
“NPI production won’t be affected by ore supply issues for the next two months but there is uncertainty surrounding the situation in the Philippines,” he said.
China still needs to stockpile around six-months’ worth of nickel ore from the Philippines in the coming months for use during the latter’s rainy season, the analyst added. The monsoon season in the Philippines usually starts late in the year and hampers mining in and shipments from parts of the country.
The Philippines is carrying out a month-long review of domestic mines and has suspended approvals of new mining projects.
The country produced around 450,000 tonnes of recoverable nickel ore last year, around 23 percent of global output, much of which feeds China's NPI mills, Macquarie estimates.
Chinese NPI production is expected to fall by nine percent to around 350,000 tonnes this year, ICBC Standard Bank estimated in May.
(Additional reporting by Ian Walker)