* Prices may fall to 150,000 yuan in next 1-2 months
* Investors may stock up after making good margins
By Polly Yam
HONG KONG, June 14 Chinese spot nickel prices
may drop in the next one to two months as stainless steel mills
cut demand, but this may allow investors to stock up the metal
that generated profit margins of more than 25 percent in the
last two years, trade sources said.
Spot nickel prices NI-1-CCNMM dropped on Tuesday to
7-month lows around 171,000 yuan ($26,377) as demand fell from
stainless steel producers, who mopped up the bulk of China's
annual nickel demand of more than 500,000 tonnes in 2010 and
2011. Weak international prices also pressured Chinese prices.
Three-month nickel on the London Metal Exchange hit
its lowest since November 2010 at $22,120 a tonne on Monday, as
worries about a growth slowdown and soft stainless steel demand
in Europe triggered sales. The price stood at $22,230 at 0735
GMT on Tuesday.
"Some investors and merchants may stock up nickel if prices
drop to about 150,000 yuan," said a trader at a large Chinese
trading and investment firm in Shanghai, who saw the price
falling to that level as early as July given that stainless
steel mills were not keen to buy spot nickel now.
He added that some investors had built up nickel stocks when
prices were around 150,000 yuan in June 2010 and sold the stocks
above 200,000 yuan in the first quarter of 2011.
That was not the first time Chinese investors pocketed hefty
profits from nickel, traders said. In late 2008 and early 2009,
many investors had stocked up refined nickel after the global
financial crisis drove Chinese prices below 90,000 yuan.
STAINLESS STEEL DEMAND
In China, stainless steel producers typically conduct yearly
repairs in the summer as products plants cut production in
June-July, hurting demand for nickel, industry sources said.
"Usually stainless steel mills do repairs in July-August as
demand (for stainless steel) falls," said Chen Shufang, analyst
at state-backed research firm Antaike.
Nickel consumption has also been hit by China's power
shortages and an increased demand from stainless steel producers
for nickel pig-iron, a cheaper alternative to the refined metal,
Power shortages have cut production at products plants in
Zhejiang, said a senior executive at a stainless steel tubes
producer in the eastern province, a major producer of stainless
steel and products in China, the world's top stainless steel
Antaike's Chen said China's tight credit policy had also
been making demand for stainless steel weaker than many had
expected so far this year.
Chen did not provide a demand estimate for 2011.
Last week, Chinese steel giant Baosteel's
stainless steel unit said it expected stainless steel
consumption in China to grow 5 to 7 percent per year over the
next five to 10 years.
Chen expects China to produce 14 million tonnes of stainless
steel in 2011, which will be a rise of 13 percent from 12.4
million tonnes in 2010, due to new capacity.
She said the 2011 output estimate would be valid even if
some stainless steel mills consider cutting output in the second
half of this year.
"Demand has increased, but output has risen faster," said a
senior executive at China Stainless Steel Exchange, a local
marketplace in Zhejiang's Wuxi city, a major base metals and
steel trading hub in China.
The 304 stainless steel cold-rolled coil, the most popular
type in the Chinese market, traded at 22,700 yuan per tonne on
Monday, down near 2 percent from end-May and a fall of 7 percent
so far this year, data on the website showed. (www.exbxg.com)
Twenty-six warehouses in Wuxi held 228,602 tonnes of
stainless steel stocks in late May versus 117,519 tonnes in
(Editing by Himani Sarkar)