HONG KONG, April 27 (Reuters) - China's production of nickel pig iron (NPI) is likely to rise further in April and May due to increased capacity after hitting a record in March, which could trim demand for refined nickel, industry sources said on Tuesday.
Nickel output from NPI hit all-time level of about 17,000 tonnes in March due to the startup of new capacity and higher production at existing capacity, fuelled by strong prices, Xu Aidong, senior analyst at state-backed research group Antaike said.
'Output may rise further in April and May,' Xu said, adding output in June and the second half would depend on prices on the London Metal Exchange and in China, which consumes around a quarter of the world's nickel and produces less than it needs.
She said output may fall if LME nickel prices drop below $20,000 a tonne.
LME nickel, the top performer among base metals, has risen nearly 45 percent so far this year to $26,850 per tonne on Tuesday.
In China, spot refined nickel prices have jumped nearly 36 percent this year to around 192,000 yuan ($28,111) a tonne on Tuesday. The price rose 7.7 percent in March alone.
Antaike's estimate of nickel output from NPI represents an annual production rate of more than 200,000 tonnes, which is double of what the research group has expected this year.
The estimate is also higher than March refined nickel output of 16,299 tonnes reported by the National Bureau of Statistics, which rose 19 percent on the month and near 35 percent from a year ago.
NPI is a low grade of ferronickel in China containing as little as 1.6 percent of nickel and made from high-iron laterite ores. NPI and refined nickel both are used in stainless steel production, of which China is the world's number one producer.
NPI production in China is heavily influenced by LME and domestic prices as producers import laterite ores as feed and sell NPI in the Chinese spot market.
China imported 3.7 million tonnes of nickel concentrates and ores in the first quarter of the year, up 123 percent on the year, official data showed. More than 90 percent of the imports were laterite ores.
Increased demand from stainless steel mills in China were supporting NPI production, industry sources said.
'Stainless steel production has been well since the fourth quarter of last year,' a manager at a stainless steel producer in Zhejiang, said.
NICKEL IS HOT
China has added capacity of more than 70,000 tonnes of nickel in NPI this year and more will come before the end of the year, industry sources estimated.
Beside NPI plants, Chinese producers are also keen to build capacity of ferronickel, nickel-chrome and nickel-cobalt to meet strong domestic demand.
'If all planned projects are built, China will soon have a nickel surplus,' the manager said.
Tsingshan Holding, a stainless steel mill, is building a ferronickel plant in Fujian province to produce 40,000 tonnes of nickel a year of which 15,000 tonnes already started production, industry sources said. The remaining 25,000 tonnes of capacity would start production before the year-end.
Chinalco, the parent of Aluminum Corp of China Ltd , will build a nickel-cobalt joint venture in Jiangxi province with initial annual capacity of 40,000 tonnes which may expand to 100,000 tonnes, the company said in a statement late Monday.
Two nickel-chrome plants are planned in Jiangxi and Shanxi provinces with annual capacity of 200,000 tonnes and 320,000 tonnes, respectively, according to Antaike. It is unclear how much nickel will be produced in the planned plants.
(Editing by Ed Lane)
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