China nickel pig iron demand rises on iron ore hikes

By Polly Yam

HONG KONG, March 27 (Reuters) - High prices of iron ore are spurring Chinese stainless steel producers to increase purchases of nickel pig iron for which iron is a free byproduct, a senior executive at Tsingshan Holding Group said on Thursday.

Tsingshan, China's top private stainless steel mill, used nickel pig iron and primary nickel to produce 600,000 tonnes of stainless steel last year without using iron ores or steel scrap, Xinfang Jiang told Reuters on the sidelines of Metal Bulletin's Asian Ferro-Alloys conference in Hong Kong.

"In the price of nickel pig iron, iron is free. That's why the use of nickel pig iron in China has risen," said Jiang, president of Shanghai Tsingshan Mineral Co. Ltd, a subsidiary of the group.

"We do not have any technical problem, and I do not believe Taigang and Baosteel would have," he said.

Shanxi Taigang 000825.SZ and Baoshan Steel (600019.SS), China's two top stainless steel producers, were using more nickel pig iron to lower production costs, Jiang said.

Chinese steel mills have agreed price hikes of 65-71 percent for iron ore from Brazil's Vale (VALE5.SA) for 2008 shipment and are trying to get the same hikes with Australian ore suppliers Rio Tinto (RIO.L) (RIO.AX) and BHP Billiton (BHP.AX) (BLT.L), who are asking for bigger hikes. China is the world's top producer of steel and stainless steel, for which nickel is added as an anti-corrosive and strength agent. It made 7.5 million tonnes of stainless steel last year and output is expected to rise to 9 million tonnes this year.

Nickel accounts for more than 60 percent of the cost of making the most popular 300 series of stainless steel, which contains about 9 percent of nickel.

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Nickel pig iron output in China is mostly made of imported laterite ores with low nickel content and high iron and a cheaper alternative for the metal. Output tripled to about 90,000 tonnes of metal last year on strong global nickel prices, which hit all time high of $51,800 in May last year.

But the price MNI3 has fallen 42 percent from the peak to $29,800 a tonne on Thursday, partly due to high Chinese output of nickel pig iron.

Bonnie Liu, Macquarie Bank's China commodity research analyst, predicted nickel prices would range at $18,000-$25,000 a tonne in 2009-2010.

Chinese nickel prices were at 245,000 yuan ($34,920) a tonne. But the price of nickel in nickel pig iron is about 155,000 yuan a tonne after deducting the value of iron, Jiang said.

He said the costs to process imported laterite ores into nickel pig iron containing 5-7 percent metal were at $8,000-9,000 per tonne in China.

Tsingshan had 200,000 tonnes of nickel pig iron capacity in China, or 10,000 tonnes of metal a year, and one million tonnes of stainless steel capacity, Jiang said.

It planned to develop a laterite ore concession in Obi island in North Maluku in Indonesia, together with Indonesian state-controlled miner PT Aneka Tambang (ANTM.JK).