SHANGHAI, Feb. 25 -- An increase in nickel laterite shipments to China this month may signal a revival in the country's nickel pig iron production after a slump in the past few months on the back of constrained ore supply and Beijing's push to meet energy emission targets.
Aggressive expansion in NPI output this year, underpinned by thriving demand from stainless steel makers, may cap demand growth in refined nickel in China, as NPI usually becomes a popular substitute for nickel when the metal's prices rise sharply.
This could cloud demand outlook for refined nickel globally given China is a major consumer for almost all metals, and may pressure the price of the metal on the London Metal Exchange in the medium and long term. Prices have already come under pressure amid ongoing tensions in the Middle East and North Africa, after rising 2.8% since Vale's announcement last week that it had closed a furnace at its Copper Cliff nickel refinery.
"The NPI market has become pretty active since last week as we received queries and orders from trading houses that are eager to import nickel laterite for the production of NPI," said a general manager at a Qingdao-based shipping company.
A shipping market participant said about 20 ships containing high-grade nickel laterite have arrived at Tianjin Port early this week, with prices having gained around 30% to CNY1,200-CNY1,300 per wet tons from a moth ago.
Industry participants said the sector may see massive new capacity being brought online this year after some projects were idled or delayed late last year in the face of Beijing's race to meet energy emission targets by the end of the 11th Five Year Plan.
Beijing Antaike nickel analyst Fan Runze said the house expects production of nickel, as contained in NPI, to reach at least 200,000 tons by the end of this year, an increase of 25% from 2010, while its projection for refined nickel consumption growth is around 4%-5% for this year.
"The nature of Chinese stainless steel products (suggest) NPI will be the darling for most (stainless steel) manufacturers, and that would certainly cap growth in refined nickel production," Fan said.
Most Chinese stainless steel makers still produce low-end products that allow the substitution of NPI for refined nickel.
While some analysts have said the long-awaited revival in supply from nickel laterite mines will send the market into a surplus, capping prices, others see a trading opportunity in the first half of 2011, because of the potential for some restocking in China. There could even be "a surge in import demand following an end to destocking," said Macquarie Bank.
A Shanghai-based refined nickel trader said that spot sales remain weak after the Lunar New Year holidays, although order bookings from large stainless steel makers look "quite positive."
"I think a switch to NPI is inevitable because of a rapid growth in consumptionâ€¦ but stainless steel production might see some drop in the second half," if Chinese authorities crack down on speculation in the real estate sector," Fan said.