- Chinese NPI prices continue declining as import arrivals continue
- Elevated stainless steel inventories limit impact of tighter NPI supply
Indonesia’s Morowali Industrial Park (IMIP) has reduced nickel pig iron (NPI) production at some smelters amid water shortages linked to El Nino-related dry conditions. However, the impact on NPI and stainless steel prices is expected to remain limited in the near term, as China continues to receive high volumes of NPI imports while stainless steel production and inventories remain elevated.
IMIP cuts NPI production amid water shortages
IMIP has started reducing production at some NPI smelters due to water shortages within the industrial complex. NPI production requires significant water for equipment cooling and other operational processes, while lower rainfall across Indonesia’s nickel-producing regions has added to supply concerns.
Market estimates suggest that if the production cuts continue for around 15 days, NPI output could decline by approximately 50,000-70,000 t. However, IMIP has not yet provided an official estimate of the total production reduction.
The potential supply loss could provide some support to NPI prices and improve short-term market sentiment. However, the impact is likely to remain limited unless the production cuts are prolonged.
High Chinese NPI imports cushion supply disruption
China’s strong NPI import volumes are expected to absorb part of the impact from Indonesia’s production cuts.
According to Chinese Customs data, China imported around 961,400 t of NPI in August, up 49.9% m-o-m. Indonesian material accounted for approximately 932,200 t, rising 51.84% m-o-m and 10.02% y-o-y.
The high level of Indonesian NPI shipments has increased raw-material availability for Chinese stainless steel producers, strengthening buyers’ bargaining power.
Consequently, Chinese high-nickel NPI prices continued to decline, falling from around RMB 1,140/ ($160/t) nickel point in mid-August to approximately RMB 1,050/t ($156/t) nickel point in late September.
The large import flow therefore provides a buffer against the immediate impact of the IMIP production cuts.
High stainless steel production adds pressure
China’s stainless steel production remains elevated despite subdued downstream demand.
Production by 43 Chinese stainless steel producers reached around 3.74 mnt in August, increasing 4.58% m-o-m and 12.84% y-o-y.
Within this, 300-series production stood at around 1.98 mnt, up 7.85% m-o-m and 14.13% y-o-y. Planned September production remained high at approximately 1.95 mnt.
High production levels are maintaining raw-material demand but are also contributing to elevated finished steel availability, limiting the ability of mills to absorb higher NPI costs.
Elevated inventories weigh on stainless prices
China’s stainless steel inventories remain elevated, further limiting the impact of tighter NPI supply.
Inventories across 89 major warehouses reached around 1.16 mnt at the end of August, with stocks remaining at elevated levels in recent months.
Inventory drawdown has remained slow despite September traditionally being considered a stronger demand period. Recovery in traditional consuming sectors such as real estate and home appliances has remained insufficient to significantly improve downstream demand.
High inventories are therefore keeping sellers under pressure and limiting the scope for a sustained stainless steel price recovery.
304 cold-rolled prices remain under pressure
Weak demand and elevated inventories have also weighed on Chinese stainless steel spot prices.
Chinese 304 cold-rolled stainless steel prices declined from around RMB 14,400/t ($2,145/t) in early September to approximately RMB 14,100/t ($2,100/t) in late September.
The decline indicates that improved raw-material sentiment from the IMIP production cuts has yet to translate into stronger finished stainless steel prices.
Market outlook
IMIP’s NPI production cuts are likely to provide a floor to NPI prices and limit further near-term declines, particularly if water shortages persist.
However, the broader stainless steel market remains constrained by high Chinese NPI imports, elevated stainless steel production, substantial inventories and subdued downstream demand.
The impact of the IMIP disruption will therefore depend largely on its duration. A short-lived production cut is unlikely to materially change the current supply-demand balance, while prolonged disruptions could gradually tighten NPI availability and provide stronger support to nickel and stainless steel prices.
Note: This article is published as part of a content exchange agreement between SteelDaily and BigMint.
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