June 14, 2011 / 7:42 AM / 6 years ago

Chinese nickel prices seen down, investors may stock up-trade

4 Min Read

* Prices may fall to 150,000 yuan in next 1-2 months

* Investors may stock up after making good margins previously

By Polly Yam

HONG KONG, June 14 (Reuters) - 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, traders said.

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 maker.

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 early January. ($1=6.483 yuan) (Editing by Himani Sarkar)

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