Noront Resources

Stainless steel makers boost nickel demand, prices

Analysts see stainless output above 30 million metric tons

Tom Stundza -- Purchasing, 3/22/2010 2:53:53 PM

World nickel prices are averaging $10/lb this month, as compared with $4.40 last March, because of increased demand from stainless steel producers-particularly those in China.

Analyst Bonnie Liu at Macquarie Bank Research says the higher prices-up from an average $8.48 in January and February-"mainly reflects the strength in primary nickel demand from the stainless steel industry and uncertainty over nickel supply." Speculators boosting prices, she says, from "growing pessimism about an early return to work at Vale Inco's struck Canadian operations, and the recent announcement of a production disruption at BHP Billiton's 67,000 metric top/year Kwinana nickel refinery in Western Australia."

She writes to clients that "China has been leading the recovery of the global stainless steel industry since the beginning of the year" with mills running at historical highs to meet strong home-market orders through mid-year at least. "Some major (stainless) steel mills in China are saying that they cannot fulfill their customers' order book requirements for the next quarter especially for the higher grade 300 series and 400 series products," she says, "due to the stronger demand from the domestic market, especially from the machinery, industrial and auto industries."

Also, other Asian, U.S. and European stainless steel producers are also bringing back production following late-2009 cutbacks :"as orders are improving from signs of a pickup in demand, especially from the auto motor, white goods and the machinery industries," Liu writes, adding that stainless distributors are also increasing the orders ahead of expected higher stainless steel prices" next quarter.

Meanwhile, veteran nickel/stainless researcher Heinz H. Pariser says that stainless steel mills, which account for more than two thirds of nickel demand, will produce 30.5 million metric tons, a 16% increase from 26.2 million last year. Even more bullish is ELG Haniel group, the world's largest stainless steel scrap supplier, which is forecasting that global stainless steel production will rise 18% to 30.9 million metric tons.

Interestingly, a Reuters report on Pariser's speech to last week's 2nd Annual Euro Nickel Conference in London notes his view that the increase in global stainless output won't be led by China. China, the world's largest stainless producer and consumer, will post output growth of 9% this year, he says, versus 32% expansion last year, while growth outside China will total 22% versus a fall of 17% last year.