China's spot nickel demand falls as steel mills slow buying

China's demand for refined nickel is weakening as stainless steel mills, its top end-users, cut purchases of spot metal, driving up stocks and squeezing prices, traders said on Thursday. Stainless steel mills' purchases of spot refined nickel to replace nickel pig iron (NPI), a low grade ferro-nickel with high iron content, have been falling this month, after a rise in August and September, when NPI prices were steady, traders said.
"We expect demand to fall. Stainless steel mills hold high inventories now because they could not sell all of their production," said a manager at a trading firm that also runs a nickel production plant in the eastern province of Jiangsu. "Stainless steel mills may cut production in the coming two months if Beijing's tight credit policy remains and buyers of stainless steel products do not have money," the manager said. An executive at a trading house in Shanghai said one of the firm's clients, a large stainless steel mill, was cutting production of high-nickel 304 grade.
Tight cash had forced the firm's clients to cut down on purchases of spot refined nickel. "Banks have had a tight credit policy for months, but only recently we have begun to feel the pain," said a sales manager at a trading house in Zhejiang province. She added that local firms found clients were not paying up within the credit periods extended to them, further cutting the cash flow. Merchants and speculators holding refined nickel stocks were willing to sell their stocks for cash but weak demand slowed the destocking, the manager said.
The executive estimated that more than 10,000 tonnes of refined nickel was stored at private warehouses in and around Shanghai city now, about 7,000 tonnes of which was in a warehouse in Wuxi city. Despite falling demand, Chinese investors who import nickel to resell in the domestic market as a way to access short-term funds amid credit tightness, were still keen to import refined nickel, traders said.
Premiums for melting grade refined nickel were being offered at about $230 to $250 a tonne over the cash London Metal Exchange nickel prices to Shanghai, flat from last month, traders said. China's imports of refined nickel and alloy rose 25 percent on the year to 19,698 tonnes in September, the highest level since September 2009. Production of NPI may reach about 300,000 tonnes of nickel, from about 160,000 tonnes last year, said the trading house manager, whose firm operates a nickel production plant. "September's record imports of ores was due to expanded NPI capacity. Many Chinese are keen to buy ores overseas."