SHANGHAI, Sep 03, 2010 (Dow Jones Commodities News via Comtex) -- Nationwide power rationing in response to Beijing's call to conserve energy and reduce emissions has led to a short-term supply shortage of nickel pig iron and an uptick in its domestic prices, industry participants said Friday.
This may spur a near-term rise in demand for refined nickel, nickel pig iron's expensive but more efficient substitute, but will unlikely change supply-and-demand fundamentals in domestic and international nickel markets, they said.
"About 60%-70% of the country's nickel pig iron production will be affected in the next few months because of restrictions on electricity use" in regions like Zhejiang, Jiangsu, Shanxi and Ningxia, said a Shanghai-based trader.
Domestic nickel pig iron was trading around CNY1,500-CNY1,580 per 1% of nickel for NPI containing 10%-15% nickel, equivalent to CNY150,000-CNY158,000 a metric ton of nickel, compared with a CNY1,480-CNY1,530 range a few weeks ago. Spot refined nickel was trading around CNY169,000/ton Friday.
"For nickel, the ultimate goal (of conserving energy and reducing emissions) is to phase out blast furnaces, and there's only one such nickel pig iron producer in Shanxi province that's been affected so far," said Xu Aidong, chief nickel analyst with Beijing Antaike, the state-owned metals consultancy.
China is the world's largest producer and consumer of stainless steel, and nickel pig iron is used in the production process.
The Ministry of Industry and Information Technology in early August issued an order for 2,087 companies to shutter inefficient and polluting production capacity, half of which involve metals production such as copper smelting, aluminum, lead and zinc smelting, and iron alloy. Beijing had also said it aims to phase out 1.44 million tons of ferroalloy capacity, nickel pig iron included, by the end of this year.
"Most nickel pig iron makers that have been asked to limit electricity use (since August) are just switching their manufacturing hours to get around local governments' orders," said a Beijing-based trader.
Analysts said nickel pig iron producers may be forced to lower output temporarily, in the face of government scrutiny, but profit margins will ultimately drive them to ramp up production again after they switch to more environmental-friendly manufacturing equipment.
"Nickel pig iron producers are actually making money these days, so it won't make sense for them to idle capacity permanently. Plus, local governments also need to make sure that they have good GDP numbers by the end of this year," said another Shanghai-based trader at a major brokerage.
Beijing Antaike expects China's apparent nickel consumption to reach 520,000 tons this year compared with 560,000 tons last year. It has raised its projection for nickel pig iron output in 2010 to 150,000 tons from 120,000 tons previously.
"At most, we can say the whole rationing thing can help China consume some of the inventory (of refined nickel) from last year, although fundamentally, China still imports a lot of the nickel it needs, and it's not going to change any time soon," said Beijing Antaike's Xu.
China had a refined nickel inventory of 100,000 tons at the end of 2009, according to Beijing Antaike.