Nickel prices are likely to remain weak for several months as a much-heralded recovery in the stainless steel sector has not yet taken off and ample quantities of pig iron are boosting substitution. Analysts had expected stainless steel producers to return to the market as buyers of nickel in the last quarter of 2007 or early this year.
But their absence, and an abundance of lower grade nickel pig iron, means it could be as late as the second quarter of this year before there is a full recovery in the market. "The stainless steel revival has not really kicked in yet," said Vanessa Davidson, analyst at UK-based industry consultants CRU. "As a result nickel demand is subdued at the moment."
"We are probably looking a recovery after the Chinese New Year," she said. The price of nickel, a key ingredient in making stainless steel, hit a record high of $51,800 per tonne in May 2007. The metal lost almost 50 percent over the following few months as stainless steel producers cut back production.
In early December, POSCO, the world's fourth-largest steel maker, began reducing its stainless steel output by 20 percent with the 130,000-tonne a month reduction continuing into the early part of this year.
Nickel imports into China, the world's largest producer of stainless steel, are expected to remain flat in 2008 while nickel pig iron offers an alternative raw material.
Consumption of nickel pig iron, a lower grade of metal compared to ferronickel, was boosted by record high nickel prices last year. Nickel accounts for more than 60 percent of the cost of making the 300 series of stainless steel, the most widely used and manufactured high grade metal. The 200-grade stainless uses smaller amounts of nickel.
David Wilson, chief economist at Norilsk Nickel, the world's biggest nickel producer said some stainless firms had already pre-ordered supplies for this month and February. "That suggests they might be looking at ramping up production," he said. "But there is a lot of scrap and secondary nickel around in the market place."
According to industry experts, nickel pig iron production reached to 85,000-90,000 tonnes in 2007 and this year it is expected to rise to 110,000-120,000 tonnes. "It will mean the markets will remain well-supplied. Nickel pig iron saved the market from being at a significant deficit last year and I think we're going to see significant volumes of pig iron levels this year as well," Wilson added.