Nickel price to weaken further as pig iron sector cuts costs (Reuters/Economic Times – June 19, 2013)

SINGAPORE/LONDON: China’s nickel pig iron producers are turning in droves to a new technology that allows them to survive at lower prices, a move that suggests nickel prices, already mired at four-year lows, could fall further.

As nickel prices near $14,000 a tonne, however, output cuts by loss-making producers with higher costs could steady the market, analysts said.

Nickel, mainly used to make stainless steel, is down 17 percent this year. It is the worst performer of a industrial metals complex hit hard by China’s slowing growth. Fed by a commodity boom, prices peaked above $50,000 a tonne in 2007.

Production of nickel pig iron in China, a cheaper substitute for pure nickel used as feedstock by stainless steel mills, has more than quadrupled to an estimated 400,000 tonnes this year from 89,000 tonnes in 2008, according to Macquarie.

At the same time, technical innovations have slashed costs, which has in turn lowered the floor for nickel prices.

The break-even cost for nickel pig iron produced by rotary kiln electric furnace (RKEF) technology is now as low as $12,500 a tonne and its market share has soared, said Dennis Zamora, senior vice president for marketing and strategic planning at Nickel Asia Corp.

RKEF technology uses about a third less power than conventional production methods.

“At the moment, around 30 percent of the whole supply in China is made out of RKEF and that figure is growing so that next year you’ll have 50 percent,” Zamora said in an interview.

The Philippine company is one of the world’s lowest-cost producers of nickel laterite ore, the low-nickel-content material used in nickel pig iron, 60 percent of which it ships to China.

PRODUCTION CUTBACKS? The rise of nickel pig iron, and RKEF plants in particular, has won market share from refined nickel.

Combined with a global nickel surplus, this has helped send benchmark nickel on the London Metal Exchange (LME) spiralling lower to near $14,000 a tonne this week, its weakest level since 2009.

Current low prices are hurting producers using older, higher-cost technology, who are expected to cut output.

“There’s no magic line that will prevent the price from sliding below $14,000, but at that level I think we will start to see some response from the nickel pig iron producers in China,” said analyst Gayle Berry at Barclays in London.

“We did see that last year when prices hit $15,000. There were some quite substantial cuts.”

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