China Takes Big Shine to Nickel All that glitters is not gold. Much of it could be nickel, in fact. Despite a continuing slump in the market for stainless steel in North America and Europe, nickel prices have risen 42 percent in the past year — mostly due to high demand for the alloy from steelmakers in China. That's good news for nickel producers, but bad news for stainless steel producers — especially those in the West — who continue to watch production costs rise. While western steel producers have experienced a bumpy ride, the demand for and production of stainless steel has remained high in Asia. In fact, analysts expect stainless steel consumption in Asia — particularly in China — to keep growing 10 to 20 percent a year until at least 2006. China is now the world's number one consumer of stainless steel — much of it imported from Korean and Japanese manufacturers — due to industrial modernization and rising per capita income in the world's most populous nation. And it has accounted for more than 60 percent of the increase in global demand for nickel over the past two years. One of the primary ingredients used to toughen and add luster to stainless steel, three-quarters of nickel consumption goes into stainless steel production. In an effort to satisfy its soaring demand for metals, China has made substantial investments into nickel mining operations around the world, including a recent plan to invest up to $650 million in a nickel project in Papua New Guinea by state-run China Metallurgical Construction Co. that would allow the company the right to buy 100 percent of the mine's production. Although buoyed by Chinese demand, the surge in nickel prices also reflects fears among steel manufacturers of a looming and long-lasting supply squeeze. Anticipation of a shortage stems in part from three projects in western Australia that came on-stream in the late 1990s using a new extraction process known as high-pressure acid leaching. The technology, however, turned out to be a disappointment, with both production and costs missing their targets. Analysts said that the prospect of rising production costs from these projects had discouraged other nickel producers from moving ahead with new mines. Furthermore, China's insatiable demand for the alloy has led to an estimated 50,000 ton annual shortage of the metal in other markets and some analysts say that it is unlikely the tight supply will ease until late 2006. The rising demand for stainless steel products in China has thus far not been a boon to North American producers, whose share prices have been languishing as companies remain caught between spiraling costs and slumping demand in the West. Besides higher nickel prices, they have complained of rising energy costs and adverse currency movements. According to an article in the New York Times late last year, many mills indicated that they would trim nickel purchases. Such a move, analysts speculate, could allow China to corner the market on nickel. Nevertheless, prospects may start to brighten for North American and European steel producers. Analysts are now predicting that low inventories and the expectation that demand from the construction and automotive industries will rise as the American and European economies accelerate. Should these forecasts prove correct, by the end of this year stainless steel and nickel prices could be moving in the same direction — up. Compiled from wire reports and other media sources. For further information and updates, please visit the following Web sites: http://www.freerepublic.com/focus/f-news/933409/posts http://www.techalloy.com/Surcharges/NY%20Times%208-21-2003.pdf http://www.marfas.com/newsarchive.shtml http://www.smh.com.au/articles/2003/10/17/1066364484891.html?from=storyrhs | 
