UPDATE 1-Inco says approached by 3 stainless steel makersWed Jun...

UPDATE 1-Inco says approached by 3 stainless steel makers
Wed Jun 8, 2005 01:43 PM ET
(Adds details on possible deal)

NEW YORK , June 8 (Reuters) - Inco Ltd. (N.TO: Quote, Profile, Research) has recently been approached by three stainless steel producers, including one large Chinese player, keen to do some type of deal to tie up a supply of nickel from the world's second biggest nickel miner, Inco said on Wednesday.

"We have actually had three (approaches) from three different countries," Peter Jones, Inco's chief operating officer and president told the Reuters Mining Summit in New York.

He did not elaborate on their identities but did say that one overture was from a "large" Chinese stainless steel company and that Inco was interested in doing supply-type deals.

"It makes sense for us to have some sort of tie up with major consumers," he said.

Stainless steel is nickel's biggest end use, with about two-thirds of global output going into that market.

Nickel, a shiny silvery-white metal, has been in short supply for the past two years, sending prices to 16-year highs because of strong demand from industrializing China and a dearth of new supply.

"(Chinese stainless steel producers) are worried about raw materials more than anything ... Finished nickel production is what they are looking at," Jones said.

A deal could involve entering into a long-term supply contract or the stainless steel maker could take a stake in a new nickel mine project of Inco's and lock in an off-take agreement that way. The latter was "much more likely", Jones said.

Jones also said that the Chinese stainless steel market offered opportunities for Inco, which until now has been most active in selling its metal into China's plating market.

"We have just really started to supply into the stainless steel market (in China), not because we are disinterested but because we just haven't had the nickel to supply," Jones said.

At the same time, China's stainless steel market could still show strong growth as only about 40 percent of nickel goes into stainless in China compared with about 66 percent worldwide.

Toronto-based Inco produced 522 million pounds of finished nickel last year, slightly less than world No. 1, Russia's Norilsk Nickel (GMKN.RTS: Quote, Profile, Research) .