Nickel trouble for steelmakers

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The demand for stainless steel has got much to do with the state of development of an economy and also how much emphasis it gives to infrastructure creation. It then says much of the scene here that India was ranked the world’s fourth-largest producer of this metal behind China, EU and Japan and its third-largest user after China and EU in 2010. Recording a growth of 12 per cent in crude stainless steel production to 2.9 million tonnes (mt), which at finished product point became 2.6 mt, the Indian demand at 2.4 mt, too, registered double digit rise.

All this in a year when the world helped by generous stimulus programmes in many countries was recovering from the worst financial crisis in several decades. According to International Stainless Steel Forum (ISSF), this year will see further rise in world crude metal production on 30.687 mt in 2010 even while “some threats may arise from bubbles in raw materials and energy prices.” To go by Salem Steel executive director Pankaj Gautam’s forecast that both the market for the metal and its production here will continue to annually grow 12 per cent, India will remain in the forefront of the world stainless steel industry’s progress. Like in China, our stainless steel demand will stay ahead of GDP growth rate.

The industry here in a major expansion mode will experience a roller coaster journey for up to six years with capacity at most times staying much in excess of demand. Going by all the expansion plans of existing mills and greenfield initiatives by the likes of JSL, Visa and BRG Steels, Indian capacity, according to Austria-based Steel Market Intelligence, will be 6.8 mt by 2016. Naturally, Gautam is foreseeing a fairly long period of tough competition among producers in the domestic market. The ground reality will see them becoming more aggressive sellers in the world market.

Ficci steel committee co-chairman N C Mathur says the inventory cost of imported raw materials like nickel, stainless steel scrap and molybdenum bears down heavily on producers of stainless steel. That New Delhi has borne this in mind finds confirmation in it now allowing duty-free import of scrap and at the same halving customs duty to 2.5 per cent on ferro nickel. According to Gautam, “a big challenge for any stainless steel producer anywhere in the world is to buy nickel at prices, which when annually averaged, will give it competitive edge.” No surprise then that Gautam is leading his unit to buy nickel at progressively short frequencies to get the best average price. “Depending on our commercial judgement, our nickel buying could be on a monthly basis or on a fortnightly basis,” he says.

The pattern of Salem Steel procurement of nickel, a major cost component in austenitic stainless steel making, unarguably holds good for the rest of the industry here. As in so many other metals, it is the Chinese buying linked to its inventory restocking and destocking that moves LME nickel prices. China, according to research group Antaike, where new capacity addition will lead to stainless steel production to rise nine per cent to 12 mt this year is to use about 520,000 tonnes of nickel, that is about a quarter of world supply. Last year, China lifted stainless steel production by 27.8 per cent to 11.256 mt, when world melt production was up 24.9 per cent to a record 30.7 mt.

High prices and some wild price swings seem to have prevailed upon Chinese mills to avoid signing yearly import contracts for nickel. Their preference now is to buy at the spot counter at the Shanghai exchange. Imports aside, China, says Antaike, itself is likely to produce 387,000 tonnes of nickel, in which the share of processed nickel will be 187,000 tonnes. An Indian industry official says like in oil and other minerals, China is seeking guarantees in future supplies of nickel by quietly acquiring significant stakes in junior nickel miners in overseas destinations. At the same time, Chinese mills are using more and more nickel pig iron (NPI) containing anything between 4 and 13 per cent nickel in a blend with chromium and other alloys to make stainless steel of 200 and 300 series.

The feedstock for NPI is laterite nickel ore containing nickel of up to two per cent and therefore, it does not lend itself well to making refined nickel. However, now through sintering and smelting impurities like phosphorous, sulphur and silicon are removed from laterite nickel ore, which incidentally constitutes two-thirds of world nickel resources. Growing use of NPI in China has had a negative impact on demand for refined nickel. BNP Paribas says rapid production growth is going to tip nickel into a sustained period of structural surplus 2012 onwards when some new major mines are be commissioned. It further points out nickel is “heading towards hefty structural surplus unless at least one of the big new projects fails outright.” The recommendation, therefore, is for a pair trade strategy in the form of long position in tin versus short position in nickel.

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