A bit of sabre rattling???China's Refined Nickel Imports to Fall...

A bit of sabre rattling???

China's Refined Nickel Imports to Fall 11% in 2007 (Update2)

By Xiao Yu

Jan. 26 (Bloomberg) -- Refined nickel imports by China, the world's biggest consumer of the metal, may fall 11 percent this year as the country steps up production from low-grade nickel ores bought from the Philippines.

Imports of refined nickel, used to strengthen stainless steel, may drop to 80,000 tons from an estimated 90,000 tons last year, Xu Aidong, analyst at Beijing Antaike Information Development Co., said by phone on Jan. 24.

The price of nickel, the best-performing commodity in 2006 and leading again this year, has more than doubled in the past 12 months and rose to a record $38,798 a metric ton yesterday on concern that supply will fail to meet demand. This has encouraged China to extract cheaper metal from so-called laterite ores.

``Nickel is a scarce resource in China and mine production has been growing slowly in recent years, so a new channel for sourcing the raw material is definitely beneficial to stainless steel producers,'' Mary Chi, consultant at CRU international Ltd's Beijing office, said by phone from Beijing today.

Laterite ores, containing nickel and cobalt, are processed using blast furnaces into nickel pig iron, containing about 1 to 3 percent nickel that can be used by stainless steelmakers to produce goods such as sinks, cutlery, pots, pans and appliances.

The ores are close to the surface and can be produced at relatively low cost by open-cut mining. China imports them mostly from the Philippines, which supplied 3.2 million tons from January to November last year, up from 265,000 tons in all of 2005, according to China's customs data.

``The emergence of nickel pig iron is something we hadn't anticipated and is replacing nickel in the production of some stainless steel products,'' said Antaike's Xu, who has been following the industry since 1996.

Cheaper Alternative

Chinese stainless steelmakers such as Shanxi Taigang Stainless Steel Co., Baoshan Iron & Steel Co. and others will boost production 37 percent this year to about 7 million tons, from 5.1 million tons, Antaike estimated.

China's annual capacity to produce nickel pig iron for them will double to 60,000 tons this year, Xu said. The nation produced virtually no nickel pig iron in 2005.

The high nickel prices have prompted smaller and mostly private Chinese companies to convert blast furnaces previously used for crude steel, Xu said. The new capacity will add to Chinese primary nickel production and help meet rising demand.

China's demand for primary nickel, which includes refined and ferronickel, will reach 300,000 tons this year, from last year's 250,000 tons, Xu said. The increase in nickel pig iron production will fully meet the rise in the demand.

Price Incentive

Nickel pig iron is sold on the Chinese market at only 60 percent of the LME refined nickel price, Xu said.

At today's nickel prices, there is massive incentive to expand production of nickel pig iron, especially since the capital cost is negligible as existing blast furnaces are being used to process the laterite ores, Jim Lennon, executive director at Macquarie Bank Ltd. in London, said by phone on Jan. 24.

``We think the production could be about 75,000 tons this year from about 25,000 tons last year and nothing before, so it's a new development,'' he said.

China's laterite ore imports may rise to as much as 10 million tons this year, mainly from three countries, Lennon said.

``We are expecting imports from the Philippines to be maybe 8 million tons this year, from New Caledonia 1 million tons overall and from Indonesia maybe between 0.5 and 1 million tons,'' he said.

----With reporting by Jae Hur and Chia-Peck Wong in Singapore. Editor: Killen {NI NICKEL BN }. For more commodity news {CTOP }.

To contact the reporters on this story: Xiao Yu in Beijing at [email protected]

Last Updated: January 25, 2007 21:59 EST