Nickel imports by key buyer China will drop in the second half of 2005, after surging in the first half, as the market deals with a glut of stainless steel, analysts said on Tuesday.
China's nickel imports in the first half of 2005 rose by 200 percent, customs data showed, to a net 41,270 tonnes on a surge in output of stainless steel, which accounts for about two-thirds of world nickel consumption.
"China consumed about 12 percent of global nickel output last year, just behind Japan, which consumed around 15 percent," Bache Financial minerals strategist Angus MacMillan said.
He said China would be the main driving force behind nickel consumption for the rest of the decade.
"(Nickel) was over-imported into China in the first half and stainless production also rose, so there is a bit of a glut of stainless," Macquarie Equities analyst Jim Lennon said.
"Apparent consumption of nickel rose 56.1 percent year on year to 104,578 tonnes in the first half of 2005," Lennon added.
"Stainless production was up almost 50 percent year on year in the first half."
He added that the surplus of material in China was forcing stainless producers in South Korea, Japan and Taiwan that normally supplied China to cut back.
"That has resulted in some order cancellations for nickel from those countries."
Chen Shufang, stainless steel analyst at Chinese metals consultancy Antaike, said: "The market is not so good now and stainless steel producers across Asia are cutting output targets."
She said leading steel firms Baosteel and Taigang had said they would produce only to meet fixed orders, so July output might suffer.
A trader in Asia said: "Asian mills are most likely decreasing their production by more or less 30 percent for the next couple of months."
Another said: "Stainless producers all over the world are hitting the brakes big time."
Antaike said China's output of all grades of stainless steel rose 48 percent in the first half of this year to 1.7 million tonnes.
However it said growth slowed from May to June.
Lennon saw underlying global stainless steel demand rising 5-6 percent this year and beyond.
He said stainless production would pick up again towards the end of the fourth quarter once the surplus in China had been worked through.
"Expect a period of destocking through the third quarter (of 2005) but the market will start to look more buoyant by end of the fourth quarter.
"We will see a lot of new stainless capacity in China, putting mills in Japan, Taiwan, South Korea and Europe under pressure."
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