China's increase in stainless steel output may reverse the recent decline in nickel prices

Release date: 2020-05-16 16:08:43 Visits: 531

As investors shift their focus from Philippine supply concerns to demand, an unexpected jump in China is stainless steel output this year may trigger a surge in nickel prices; China is the world is largest nickel consumer.

In June, concerns that the Philippines will impose a comprehensive ban on nickel ore exports pushed up nickel prices. As of mid-August, the price of nickel on the London Metal Exchange (LME) has risen by one-third, reaching a peak of more than $11,000 per ton. However, as no more nickel mines were shut down, nickel prices fell sharply by 9% to $9,995 per ton as of Friday.

According to UBS, China is production of nickel-containing 300 series stainless steel increased to 11.201 million tons from January to July, an increase of 10% over the same period in 2015. According to UBS, overall stainless steel output from January to July 2016 increased by 8% year-on-year to 13.639 million tons.

When the British steel consultancy MEPS released its estimates in February, it predicted that China''''''''s output would only increase by 1.7%.

The increase in China''''''''s stainless steel production may drive nickel prices to rise after the fall in August; at that time, the Philippines'''''''' continuous closure of nickel mines has ceased, weakening concerns about shrinking nickel ore supply.

Dan Morgan, an analyst at UBS in Sydney, said, “People have been paying attention to the supply side and they should also pay attention to the demand side, and this aspect looks more gratifying.”

According to analysts, steel mills produce more 300 series stainless steels and reduce production of lower quality 200 series stainless steels. The 300 series stainless steel contains 8-10% nickel, while the 200 series contains approximately 3% nickel.

Macquarie analyst Jim Lennon said, "The low nickel price and the rejection of low-quality steel by customers have caused the market to shift from 200 series stainless steel to 300 series."

Lennon said that China’s nickel demand in 2016 is expected to increase by 90,000-100,000 tons, because even nickel pig iron producers are using nickel as their feedstock after low prices and Indonesian export bans have led to a decline in nickel ore supply.

According to UBS, China accounts for about 53% of global nickel demand.

In other places outside China, due to the lack of nickel-containing scrap, many manufacturers have to use refined nickel. Last year, the price of nickel-containing scrap was less than 75% of the price of nickel on the London Metal Exchange (LME). Lennon said, but this year''''''''s price is between 75-80% of the LME nickel price.

"We believe that global nickel usage will increase by 5.8% this year, which is much higher than other metals," he said.

UBS'''''''' Morgan expects nickel prices in the fourth quarter to average US$4.75 per pound or US$10,472 per ton.

Macquarie predicts that the output of nickel ore in the Philippines will fall by 85,000 tons to 355,000 tons this year, reducing global supply in 2016 by 3.3% to 1.914 million tons. This will result in a 70,000 tons shortage in the nickel ore market, the first time in five years.

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