HONG KONG, Dec. 6 -- China's real nickel consumption growth will slow to between 2 to 4 percent next year, from 12 percent this year, as demand from an oversupplied stainless steel sector slows, Fan Runze, an analyst at state-backed research firm Antaike said on Thursday.
China, which consumes about a quarter of the world's nickel and is the world's top stainless steel producer, may use 510,000-520,000 tonnes of nickel in 2011, up from 500,000 tonnes in 2010, said Antaike's Fan Runze.
The estimate for 2010 was up from a forecast of 460,000-470,000 tonnes made in late September, and from consumption of 447,000 tonnes last year.
"You go around China and you will see how urbanisation is going on. This is consuming large amounts of stainless steel," Fan told Reuters.
He expected stainless steel production to rise 9 percent, or by 1 million tonnes to 12 million tonnes next year due to new capacity. This year, stainless steel production is expected to rise by 2 million tonnes to 11 million tonnes.
Fan said stainless output growth would slow as the domestic market was now oversupplied, which would encourage high-cost mills to restrict production.
Stainless steel mills make up 65-70 percent of China's demand for nickel, also used in the plating and battery sectors.
China's nickel production would rise to between 370,000 and 400,000 tonnes next year, from about 340,000 tonnes this year, Fan predicted.
That output includes refined nickel, ferro-nickel, containing 25 percent of nickel, and nickel pig iron (NPI), which contains as little as 1.6 percent of nickel and is made from imported high-iron laterite ores.
Traders said Chinese stainless mills were not keen to sign yearly contracts for refined nickel imports in 2011 due to high London Metal Exchange prices , which have risen more than 25 percent so far this year.
"Several big mills we have talked to are not going to sign term contracts (with us). They said the risk was big and overseas prices were high," a sales manager at a trading firm in the northern region of Inner Mongolia, said, adding that mills would buy spot nickel in Shanghai.
Stainless steel mills increased the use of locally-produced NPI has also reduced the need for term nickel imports, traders said.
On Thursday, NPI traded at about 1,550-1,600 yuan ($233-$240) per one percent of nickel for material containing 10-15 percent nickel, equivalent to about 155,000-160,000 yuan per tonne of nickel. Spot refined metal NI-1-CCNMM traded at about 179,500 yuan ($26,939). LME spot metal was bid at $23,305 a tonne at 0831 GMT.
Without yearly contracts to sell their material on to mills, Chinese merchants could be taking on more risk when booking annual imports, traders said.
A manager at a large trading house in Shanghai said the firm would cut yearly bookings in 2011 since local nickel prices had stayed below the cost of imports for much of this year.
Overseas suppliers have offered premiums of $200-$220 a tonne over cash LME prices for deliveries in 2011 for melting grades, compared with $200 the firm paid this year.
Weak domestic nickel prices have also encouraged merchants to store contracted arrivals in bonded warehouses, traders said, who estimated that more than 30,000 tonnes of such stocks -- declared to customs but on which the 17 percent value-added tax hasn't been paid -- were in Shanghai, more than 1.5 times China's imports in October. [ID:nTOE6AT06Y]
Bonded nickel in Shanghai was offered at premiums of around $200 for melting grades for immediate delivery and $300 for delivery in 2011.