China's Use of Nickel Pig Iron to Curb Prices in 2008 (Update1)
By Li Xiaowei
Dec. 5 (Bloomberg) -- China's use of nickel pig iron for stainless steel production will ``stay forever'' and constrain prices for primary nickel from rising to records, Macquarie Group Ltd. said.
Nickel pig iron, processed from low-grade nickel ore and containing 4 to 10 percent nickel, is bound to ``stay forever'', said Bonnie Liu, a Macquarie analyst in a phone interview today. Nickel may range within $25,000 and 35,000 a ton on the London Metal Exchange next year and will ``hardly ever'' return to the record $51,800 reached in May, she said.
China, the world's biggest stainless steel producer, increased production of pig iron this year after nickel jumped 55 percent to May's record high. The metal has since tumbled by half.
The country's output of pig iron will rise to 110,000 metric tons in terms of nickel metal contained, from an estimated 85,000 tons this year and 25,000 tons in 2006, Liu said. China started producing nickel pig iron in the last couple of years.
Macquarie's forecasts are lower than those of Jiangsu Xuzhou Jinxiang Metallurgy Co. which has said next year's output may rise to as much as 140,000 tons, from 110,000 tons this year.
``We are bullish about the prospects for pig iron as it has replaced refined nickel as the choice of purchase by steelmakers'' such as Shanxi Taigang Stainless Steel Co., the nation's largest, said Zhong Yongqi, general manager of Xuzhou, said today by phone fromn Xi'an.
The break-even price for electric arc furnace-produced pig iron is around $23,000 for each ton of the metal contained and that for blast furnace-produced pig iron is $20,000, Zhong said.
`Not Constrained'
Pig iron producers offer their nickel units at a 15 to 20 percent discount to primary nickel, with additional benefits coming from the iron and chromium content that is included in the price, said Macquarie analysts in an e-mailed report today.
``The output of recoverable nickel'' from the pig iron ``does not look constrained, and will simply be determined by the level of demand from the stainless steel sector as well as global nickel prices in 2008,'' analysts led by Liu said in the report.
China's production of stainless steel, the largest in the world, will rise to a record 9.5 million tons, from an estimated 7.5 million tons this year, after expansions across the country this year, the analysts said.
Nickel rose 0.6 percent to $25,850 a ton on the London Metal Exchange at 5:07 p.m. Shanghai time.
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