Austenitic Stainless Steel Market Depends On Nickel Price Forecast

As current nickel prices have wallowed (which we covered in Part One of this article), in China, nickel pig iron (NPI) production has surged in recent years, according to Nickel Investing News.

NPI production numbers could reach 300,000 metric tons in 2013, according to figures from Sumitomo as quoted by China Daily.

That’s up from Sumitomo’s October forecast of 240,000 tons, and seems to run counter to estimates that China’s NPI cost of production is in the high $15,000-per-metric-ton range, probably around $15,700.

If this is correct, we should expect Chinese NPI producers, at least those operating older, higher-cost technology to start cutting production. China’s impact on the nickel market should not be under-estimated…

From just 8% of global NPI consumption 10 years ago, the country now accounts for 44% .

So if Chinese NPI producers cut back due to low prices, the country’s stainless producers will have to import ferro-nickel and pure nickel for stainless production.

The process is likely to be gradual, as the most expensive NPI producers react first. But as slowing production begins to impact the supply market, it could at least limit further nickel price falls this year and signal the bottom for the market.

Analysts are calling for average prices this year closer to $18,000 per ton. As wqe're nearly halfway through the year, that’s a big ask from the current $14,550, and it should not be forgotten that shuttered NPI production could be re-started if prices picked up too fast too soon.

But to call the bottom has advantages for stainless buyers, who have been living hand-to-mouth in the expectation that next month will be lower than this one. Committing a little forward volume could earn price concessions, even if nickel prices fall no further.

by Stuart Burns