SHANGHAI, May 26 -- Baoshan Iron & Steel Co. is "not very optimistic" that stainless steel consumption growth in China will match last year's rate, prompting increased use of cheaper materials to make the corrosion-proof steel.

Apparent consumption growth may be 5 percent this year on a possible slowdown in China's property market and in the European economy, said Lou Dingbo, general manager of Baoshan's stainless unit, without giving an exact figure or last year's growth. Baoshan, China's second-biggest stainless steelmaker, may use more nickel pig iron to make the metal this year because it's more competitive than primary nickel, he said.

Nickel, used to help protect steel from corrosion, has dropped 22 percent from this year's high of $27,595 a ton on April 16 on speculation European efforts to curb government debt will erode economic growth and China may step up measures to reduce asset bubbles. China, the biggest consumer, more than tripled production of the cheaper nickel pig iron in the first quarter, said Wang Chongfeng, a Shanghai Metals Market analyst.

"China's stainless mills used around 100,000 tons of nickel from pig iron, and may use more this year," Lou said. "Big mills source around one-third of their nickel needs from nickel pig iron while smaller mills can use up to 80 percent."

Nickel pig iron is processed from low-grade ore known as laterites. It is an alternative ingredient to the refined metal in the making of stainless steel.

Full Capacity

Still, Shanxi Taigang Stainless Steel Co., China's biggest producer of the rust-proof metal, said May 9 it plans to run its plants at full capacity to the end of the year because of strong demand. The utilization ratio at its plants is at 100 percent, Chairman Li Xiaobo said.

China's $586 billion stimulus package increased demand for stainless steel used in infrastructure projects, boosting Taigang's projected production by 34 percent to a record, Vice President Chai Zhiyong said last September.

World stainless steel output jumped 55 percent in the first three months to 7.9 million tons from a year earlier, and will increase 20 percent to 31 million tons in 2010, the biggest gain since 1976, according to Macquarie Group Ltd.

Nickel for three-month delivery on the London Metal Exchange gained 1.5 percent to $21,520 a ton by 2:29 p.m. in Shanghai.