HONG KONG, April 29 (Reuters) - Chinese merchants are re-exporting some imported refined nickel stocks as steelmills switch to cheaper nickel pig iron (NPI), which may be near-term bearish for LME nickel prices, industry sources said on Thursday.
'In our case, NPI has replaced 60-70 percent of our refined nickel (a key part of stainless steel manufacture),' said a senior executive at a medium stainless steel producer in Jiangsu province, adding it was seeking to buy a laterite mine in Indonesia to produce NPI.
A manager at a medium mill in Zhejiang province said the firm now used NPI for all production.
NPI, a low grade of ferronickel, is made from imported high-iron laterite ores, containing nickel and iron but priced for their nickel content only.
Mills using refined nickel have to also blend it with iron ore to make stainless steel, a more expensive process.
Traders estimated NPI may have been substituted for up to 70 percent of spot refined nickel demand from small- and medium-size mills in China for now, although the level of replacement is hard to prove as there is no official data, and China is expected to remain an importer of refined nickel in the medium term.
But traders said a change in use was evident.
'Mills now are buying refined nickel as an additive, not a main raw material any more,' a nickel trader in Shanghai said.
Strong nickel prices have boosted prices of imported stainless steel scrap, discouraging mills to import the material, an alternative feed.
On Thursday, NPI was priced at 1,620-1,670 yuan ($237-$245) per one percent of nickel for material containing 10-15 percent nickel, equivalent to 162,000-167,000 yuan per tonne of nickel.
Refined nickel in China traded at 185,250 yuan up 31 percent so far this year.
London Metal Exchange nickel, the star among base metals, has risen more than 35 percent so far this year to $25,500 per tonne on Thursday.
Spot iron ore has risen more than 50 percent so far this year.
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NICKEL OVERSUPPLY
Strong demand boosted production of NPI to a record in March and kept stocks of refined nickel high in China, prompting merchants to re-export contracted arrivals, traders said.
State-based research group Antaike believes China's nickel market is oversupplied now and estimates more than 140,000 tonnes of refined nickel are stored in private and bonded warehouses, 8.5 times of the country's March production, according to its senior nickel analyst, Xu Aidong, who tapped stocks at 140,000 tonnes in late December.
Xu's figure is higher than 100,000 tonnes estimated by nickel traders in Shanghai.
'We resold 200-300 tonnes of term imported nickel to a Singaporean company,' a trader at a large Chinese trading firm said of bonded nickel, who estimated some 50,000 tonnes of imported nickel were stored in bonded warehouses in Shanghai and the stocks may find the way to other countries.
The bonded nickel for smelting grade was offered at premiums of $150-$250 per tonne over cash LME prices, down from about $350 in the first quarter of the year, traders said.
Premiums for spot nickel from Rotterdam to Shanghai were offered at $70-$130.
China's exports of refined nickel and alloy rose 1,100 percent on the year to 7,310 tonnes in March, the second-highest after December's record.
(Editing by Ed Lane)
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