China Ramps Up Nickel Pig Iron Output on LME Nickel Rally

SHANGHAI, Apr. 1 -- Chinese nickel pig iron producers have been ramping up production on the back of rising nickel prices at the London Metal Exchange, taking advantage of NPI's price advantage compared with primary nickel to sharply increase market share, analysts said Thursday.

Chinese blast furnace operators are able to produce NPI cheaply by combining low-grade imported nickel ore with coking coal, providing an alternative, inexpensive source of nickel for steelmakers.

"Massive NPI operations started around mid-March, producing around 13,000 tons of pure nickel in that month--and more supply is coming online in coming months," said Celia Wang, a nickel analyst at CBI China.

NPI output appears set to account for a big chunk of nickel demand from China's stainless steel sector, which was roughly 300,000 metric tons last year, and will likely rise in 2010, analysts said.

"Stainless steel mills have been running at full capacity since late last year, and NPI is certainly their darling given rising (primary) nickel prices--because no one wants to have higher production costs," said Xu Aidong, chief nickel analyst with Beijing Antaike, a state-owned metals consultancy.

At 0632 GMT, three-month LME nickel was at 25,109 a metric ton, up 0.5% since Wednesday's afternoon kerb and near its highest level since May 2008, boosted by fund buying and restocking at stainless steel mills.

Some Chinese producers of minor metals, such as manganese, have switched to NPI production as "most ferroalloy furnaces are interchangeable," said CBI China's Wang. "If one kind of metal can make more money than the other, producers will just change their production plan."

For at least the next several months, if primary nickel prices find support in the current range, NPI production will likely stay high, despite fears that downstream demand for stainless steel could eventually weaken.