china nickel monthly - shanghai metals market

CHINA NICKEL MONTHLYJan. 11, 2013｜No.19｜Published by SMM｜http:// en.smm.cn｜26 Pages

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Table of Contentsnts China Nickel Supply and

Demand Balance ..................................P1December Nickel Price Review ............P3Hot Topic ...............................................P4Supply and Demand .............................P7

Refi ned Nickel

Nickel Ore

NPI

Stainless Steel

Price Movement ..................................P14Refi ned Nickel

Nickel Ore

NPI

Stainless Steel

SMM Exclusive Analysis ....................P19 News .................................................P24

Overview of China Nickel Market

Unit: 10,000 Mt

Indonesia The Philippines Others

0100200300400500600700

Unit: Mt

Output Net Imports

8,000

15,400

22,800

30,200

37,600

45,000

Nov-11

Dec-11Jan

-12Fe

b-12

Mar-12

Apr-12

May-12Ju

n-12Ju

l-12

Aug-12

Sep-12

Oct-12

Nov-12

Nov/11

Dec/11Jan

/12Fe

b/12

Mar/12

Apr/12

May/12Ju

n/12Ju

l/12

Aug/12

Sep/12Oct/

12

Nov/12

.

China Nickel Ore Imports (Physical Content) China Refi ned Nickel Apparent Consumption

Source: SMM

Unit: 1,000 Mt Unit: Mt

China Stainless Steel Apparent Consumption

850000

950000

1050000

1150000

1250000

1350000

05

101520253035

Dec-11Jan

-12Feb-

12

Mar-

12Apr-

12

May-

12Jun

-12Jul

-12

Aug-12Sep

-12Oct-

12

Nov-12

Dec-12

10%~15% 4%~8% 1%~2%Nov

-11

Dec-11Jan

-12

Feb-12

Mar-12

Apr-12

May-12Jun

-12Jul

-12

Aug-12

Sep-12Oct-

12

Nov-12

China NPI Output (Ni Content) China Stainless Steel Apparent Consumption

Source: SMM

SMM Exclusive● NPI Capacity (including RKEF) Forecast for 2013

● RKEF Technology to Lower LME Nickel Floor Price to USD 12,500/mt

● Indonesia’s Benchmark Nickel Ore Export Price in 2012

● Indonesia’s Nickel Ore Output Target for 2013 at 37 Mln mt

● Indonesia Sets Benchmark Nickel Ore Export Price for January

● Overcapacity Weighs on Nickel Prices in 2013

● LME Nickel Sets to Enter New Cycle, Prices Expected to Rise

● Stainless Steel Mills Release January NPI Procurement Prices

● Indonesia Optimistic It Can Implement Export Ban in 2014

● Sluggish Downstream Demand Drives NPI Prices down 2012

1 CHINA NICKEL MONTHLY Jan. 11, 2013

Copy Right © SMM Information & Technology Co., Ltd.

China Nickel Supply and Demand Balance

Nickel supply and demand were largely balanced in 2012, according to SMM statistics. Only 25,900 mt (Ni content) was added to aggregate inventories.

NPI contributed some 360,000 mt (Ni content) in 2012 according to SMM. This number is expected to reach 450,000 mt in 2013 as a large number of new NPI projects enter operation. Nickel salt production stalled in 2012 and will remain so this year. Output of refi ned nickel slipped slightly in 2012, but is expected to grow 5% in 2013 with the Jinchuan Group’s capacity expansion.

China’s refined nickel imports fell 31.67% in 2012 as stainless steel producers switched to NPI and as demand from other downstream sectors was sluggish, such as in electroplating and the battery industry. Finance-driven and arbitrage-driven nickel demand was brisk, but real downstream demand was soft. China’s net refi ned nickel imports are expected to remain below 120,000 mt in 2013. Net ferronickel imports, however, should rise significantly as European suppliers discount against Europe’s sluggish stainless steel market.

Stainless steel remains the largest consumer of nickel, taking some 84% of all the nickel consumed in 2012. Total stainless steel output in 2012 was 15.6 million mt, 50% of which was #300 stainless, and 30% was #200 stainless steel. Coupled with consumption from other downstream sectors, actual consumption of stainless steel was around 744,700 mt. China’s stainless steel output is expected to grow 7.3% this year, driving growth in the consumption of nickel. Meanwhile, some 55,900 mt of nickel are expected to be added to inventories in 2013.

Given overcapacity in the nickel sector, a stable supply situation, and falling production costs, as well as overcapacity in the stainless steel sector, SMM expects LME nickel prices to largely remain in a narrow band, though with low-end prices drifting downward. LME nickel prices should move between USD 14,000-21,000/mt in 2013 and spot nickel prices in China move between RMB 105,000-165,000/mt.

Table1: Nickel Supply and Demand in China2011 2012E YoY 2013E YoY

Refi ned nickel output 19.25 17.69 -8.08% 18.69 5.63%

Net imports of unwrought, non-alloy nickel 18.23 12.46 -31.67% 12.00 -3.67%

NPI output 28.24 36.00 27.48% 45.00 25.00%

Output of nickel salt and other 0.90 0.90 0.00% 0.90 0.00%

Net imports of FeNi 4.22 7.13 68.74% 7.00 -1.81%

Other sintered nickel oxide and intermediate nickel products 2.24 1.89 -15.78% 2.00 6.08%

Apparent consumption 73.08 76.07 4.08% 85.59 12.52%

Actual consumption 68.14 73.47 7.83% 80.00 8.88%

Inventory change 4.94 2.59 -47.61% 5.59 115.72%Source: SMMNote: SMM excludes hydrometallurgical intermediates as are consumed in the production of refi ned nickel. Anode nickel and nickel powder are excluded as well due their small volumes. Sintered nickel oxide assumes a ratio of 85%. Ferronickel imports assume a ratio of 30%.

China Supply and Demand Balance 2011-2013E and Nickel Price Forecast 2013



Table 2: China Nickel Apparent Consumption November 2012

Q1+Q2 Q3 Q3* Oct. Oct.* Nov. Nov.* MoM* YoYYTD 2012

YoY

Domestic

Refi ned Nickel 111431 62136 46520 23424 15750 23924 15930 1% 20% 220915 27%

Nickel Salt 4200 2100 2100 700 700 700 700 0% 0% 7700 0%

NPI 187100.4 78956.9 78956.9 31600 31600 30700 30700 -3% 61% 328357.22 25%

Primary Nickel(Total) 302731.4 143192.9 127576.9 55724 48050 55324 47330 -1% 39% 556972.2 25%

Imported

Refi ned Nickel 71405 39567 39567 17536 17536 14426 14426 -18% -23% 142934 -28%

FeNi 37361 19710 18662 3816 3790.6 6488.7 6856.4 81% 12% 67375.7 87%

Imports (Total) 108766 59278 58229 21352 21326.6 20914.7 21282.4 0% -14% 210310.7 -10%

Exports

Refi ned Nickel 15160 7265 7265 2272 2272 6113 6113 169% 107% 30810 -9%

FeNi 784 204 209 309.6 307.5 240.3 253.9 -17% - 1537.9 38%

Exports (Total) 15944 7415 7420 2581.6 2579.5 6353.3 6366.9 147% 115% 32293.9 -7%

Apparent Consumption 395553.4 195055.9 178385.9 74494.4 66797 69885.4 62245.5 -7% 14% 734989 14%Sources: SMM and CNIA Note:The above data all refer to nickel content.SMM makes some adjustments on apparent consumption as follow.1. From July 2012, refi ned nickel output of China Nickel Monthly sources from SMM exclusive survey, while the nickel output previously used data sourced from China Nonferrous Industry Association (CNIA).2. In November 2012, imports of nickel contained in ferronickel are calculated at averaged grade of 31.7%, while were calculated at averaged grade of 30% before July. SMM will adjust average grade based on survey result.3. The data in the November Column are calculated through old standards, while data in November * Column are calculated by new standards. For data consistency, SMM still uses data sourced from China Nonferrous Industry Association for a year on year data comparison.

Apparent Consumption of Nickel down 7.5% in NovemberSMM’s survey of refi ned nickel output shows that China’s apparent consumption of nickel slipped 4,551.5 mt, or 7% MoM*, to 62,245.5 mt in November. SMM attributes this to two factors.

Net Nickel Imports Fell 20.44% MoM to 3,831.5 Mt in November

Demand from the fi nance-driven trade in nickel fell in November. China imported 18% less nickel in November than October while exports were up a sharp 169% YoY. China’s refi ned nickel imports declined 28% in 2012 against an 87% increase in ferronickel imports. This signals that demand from stainless steel mills was poor and that NPI enjoys a cost advantage.

Primary Nickel Output down 720 mt (or 1%) MoM in November

China’s output of primary nickel in November held essentially fl at with October. Refined nickel output rose 1% on the month, but this was against a 3% decline in NPI production. The reduction in primary nickel output (Ni content) and the decline in net nickel imported yielded the 7% decline in apparent consumption observed.



Unit: USD/mt

14000

16000

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20000

22000

＃1Spot Nickel Prices Converted LME Nickel Prices11

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-31

Figure 1: SMM Nickel Prices Vs LME Nickel Prices

Source: SMMNote: #1 Nickel spot prices converted = (SMM average prices of #1 refi ned nickel/1.17/exchange rates)-trade premiums

Nickel Ore (Ni 0.9-1.1%) Nickel Ore (Ni 1.4-1.6%)Nickel Ore (Ni 1.8-1.9%) Nickel Ore (Ni 1.9-2.0%)

Unit: RMB/wmt

200

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/12/16

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/1/5

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/12/10

2012

/12/30

Figure 2: Nickel Ore Price Trends at China Major Ports

Source: SMM

Unit: RMB/mtu

NPI (1.6-1.7%) NPI (4-6%)

NPI (10-15%) Stainless Steel Basic Stock (9-10%)

100013001600190022002500

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Figure 3: China NPI Prices by Grade

Source: SMMNote: Unit is RMB/mt for NPI (Ni 1.6-1.7%), while unit is RMB/mtu for NPI (Ni 4-6%), NPI (Ni 10-15%), and stainless steel basic stock (Ni 9-10%)

Unit: RMB/mtu

201/2B 304/2B 430/2B

800010000120001400016000180002000022000

2012/1/4

2012/2/1

2012-2-22

2012-03-14

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2012/11/19

2012/12/10

2012/12/31

Figure 4: Price Comparison Among Stainless Steel Prices

Source: SMM

Refi ned NickelLME nickel prices fluctuated in wider band during December. Improved employment data in the US and macroeconomic indicators in China caused LME nickel prices to rally to a high of USD 17,913/mt. However, mounting concerns over the “fi scal cliff” in the US then pushed LME nickel back down to a low of USD 17,040/mt. As an agreement averting the “fiscal cliff” has finally been reached, the US dollar has returned to being the preferred safe harbor for risk-adverse investors. This promises to weigh LME nickel prices down in January. However, this will be balanced against the let-up of the year-end liquidity crunch, lending support to LME nickel. SMM thus expects LME nickel prices to continue fluctuating across a wide band, swinging between USD 16,500-18,500/mt over the next few weeks.

Nickel OreNickel ore prices (Ni 1.8-2.0%) slipped RMB 5/wmt on moderate transaction volumes driven by ample supply and stagnant demand. China’s nickel ore imports remained relatively high through November and December. Some suppliers sold off port inventories to generate cash against the year-end liquidity crunch. NPI producers, however, were under little pressure to restock. Although LME nickel prices rebounded in late December, nickel ore prices failed to follow suit. SMM expects nickel ore prices to lack upward momentum and will remain stable in January.

NPIThe price of (Ni 10-15%) NPI remained fl at last month, failing to advance with LME nickel due to soft demand, and are expected to remain flat through January. The price of NPI (Ni 6-8%) was also unchanged and is expected to remain low this month due to the weakness in NPI (10-15%) prices. The price of NPI (Ni 1.6-1.7%) advanced RMB 50/mt in December, largely due to higher prices on its supplementary materials. SMM expects low-grade NPI prices to remain fl at through January.

Stainless SteelThe average price of 201/2b was RMB 11,200/mt in December, down RMB 100/mt from November. The average price of 304/2b (including rolled plate from Taiyuan I/S, Baoxin Stainless, and Pohang Stainless) was RMB 18,167/mt, down RMB 11/mt from the previous month. That for 430/2b was RMB 9,500/mt, fl at with November. Traders were under no pressure to rebuild inventories, muting activity on the stainless steel market.

December Nickel Price Review



Hot TopicNPI Capacity (including RKEF) Forecast for 2013China’s NPI capacity approached 920,000 mt in 2012, 610,000 mt/yr of which was in regular use.

In view of the fact that some ineffi cient NPI capacity will be replaced by RKEF this year, while other NPI producers shift to ferrosilicon, silicomanganese alloy, ferrochrome, and other ferroalloys, SMM expects NPI capacity for 2013 to be around 730,000 mt with output around 450,000 mt. NPI output growth peaked at 86.27% in 2011, but then slowed in 2012 as the production base swelled. NPI output is expected to grow 25% this year.

SMM has compiled the following list of projects likely to enter operation in 2013.

Unit: USD/mt

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Fujian (RKEF) Inner MongoliaJiangsu and Shandong 4%~6%LME nickel price

Figure 6: NPI Production Cost by Region

Source: SMM

Unit: 10,000 Mt

9 8.57 1120.49

28.2436

4542.451.8

6173

21.38

0102030405060708090

2007

2008

2009

2010

2011

2012

E20

13 E

0%10%20%30%40%50%60%70%80%90%

Output Capacity YoY

Figure 5: China NPI Capacity & Output, 2007-2013E

Source: SMM

Table 3: New NPI Capacity 2013Company Number of Furnace Specifi cation of Furnace Total Power(KVA) Estimated Output (Mt)Southwest Stainless Steel 2 36000 72000 8228.57

Yangzhou Yichuan Nickel 1 25000 25000 2857.14

Shandong Xinhai Science and Technology 6 33000 198000 22628.57

Huade Zhongtai Nichrome -Alloy 1 33000 33000 3771.43

Macrolink Group 8 33000 264000 30171.43

Linyi Jinhaihui Science and Technology 2 33000 66000 7542.86

Jiangsu Delong Nickel Industry 4 33000 132000 15085.71

Baosteel Desheng Stainless Steel 2 33000 66000 7542.86

Tsingshan Group 1 230 230 26565.00

Total 124393.57

Suqian Xiang-Xiang Industry (RKEF innovation project) 4 33000 132000 15085.71

Source: SMMNote: annual capacity should refer to nickel content

Although construction of many more projects has been reported, SMM research has these as the projects most likely to enter operation in 2013. Total new NPI capacity (Ni content) will exceed 120,000 mt. SMM thus projects NPI regular capacity (physical content) at 730,000 mt in 2013.

Of this 120,000 mt of new NPI capacity slated to enter operations this year, only the Tsingshan Group is building a blast furnace project. All the others are RKEF + stainless projects. SMM expects NPI output to grow 25% in 2013, yielding an output (Ni content) around 90,000 mt.

RKEF Technology to Lower LME Nickel Floor Price to USD 12,500/mtThe left chart reflects SMM’s comparison of NPI production costs (Ni 4-6%) at RKEF producers in Fujian versus traditional sintering + electric arc furnace producers in Inner Mongolia, Jiangsu, and Shandong. Fujian’s RKEF producers enjoy the lowest production costs at USD 12,500-15,200/mt. Lower energy consumption and favorable logistics have enabled Fujian’s RKEF NPI producers to baseline LME production cost down to USD 12,500/mt.

This explains the rise in the proportion of NPI producers using RKEF technology from 7% in 2011 to 30% in 2012. By late 2012, China had 170,000 mt of NPI (Ni content) RKEF capacity.



Table 4: Breakdown of RKEF NPI Capacity in 201

Company ProjectNumber of

FurnaceSpecifi cation

(KVA)Number of

FurnaceSpecifi cation

(m3)Total

Power

Tsingshan Group

Fu’an in Fujian 2 25,500 3 33,000 150,000

Guangqing Science and Technology 4 33,000 -- -- 132,000

Centaury Tsingshan Group 2 66,000 -- -- 132,000

Baosteel Group Desheng Nickel 2 25,000 2 33,000 116,000

Beihai Chengde Nickel Industry Beihai Chengde 2 33,000 -- -- 66,000

Jiangsu Delong Nickel Industry 12 33,000 -- -- 396,000

Shandong Xinhai Science and Technology 9 33,000 -- -- 297,000

Sinosteel Binhai Nickel Industry 2 48,000 -- -- 96,000

Shandong Jinhaihui 1 25,000 -- -- 25,000

Fujian Hehai Industry 2 33,000 -- -- 66,000

Total 1,476,000Source: SMM

This proportion is expected to rise further in 2013. SMM projects that 75,000 mt of the 90,000 mt of new NPI (Ni content) capacity being added this year will be RKEF. RKEF NPI output (Ni content) was 108,000 mt in 2012. Combining these two numbers, SMM expects RKEF NPI output to reach 183,000 mt in 2013, bringing the proportion of RKEF NPI to 40%.

RKEF NPI production costs in Fujian fl uctuate within 12-30% of the LME nickel price. Considering that RKEF capacity is approaching 40% of China's total capacity, but is lower elsewhere in the world, SMM believes that the LME nickel fl oor price will be around USD 14,000/mt this year.

Indonesia’s Benchmark Nickel Ore Export Price in 2012Indonesia’s Minister of Trade, Gita Wirjawan signed “Method for Determining Standard Export Prices on Mining Products Subject to Export Duties” into action on May 28, 2012.

Article 3 stipulates that the standard export price (HPE) of the mining product is determined with reference to the following: a.) fulfi llment of the domestic need; b.) conservation of natural resources; c.) stability of the domestic mining product price; and/or d.) competitive capacity of the exported mining product.

Article 4 stipulates that the determination of the HPE on the mining product is based on: a.) high average price at the international stock market; b.) highest average FOB price; c.) high average price that applies at the domestic market; or d.) highest average price at the mining product importing country. The highest average price is determined based on the highest average price during the last period prior to the determination of the HPE. The highest average price is calculated from 10 (ten) days prior to the running period until 10 (ten) days prior to the end of the running period.



2122222323242425252626

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15000

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17000

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18000

LME3 nickel monthly average price1.5%-1.8% Ni ore export benchmark price

Figure 7: Correlation between LME Nickel Price and Indonesian Nickel Ore Export Benchmark Price

Source: SMM

Table 5: Breakdown of Indonesian Benchmark Nickel Ore Export Price (Harga Patokan Ekspor/HPE)Nickel Ore Grade Jun. Jul. Aug. Sep. Oct. Nov. Dec.<1.5% 15.8 15.8 13.86 13.14 13.76 15.09 13.56

1.5%-1.8% 25.14 25.14 22.95 21.7 22.78 24.98 22.45

1.8%-2.0% 32.69 32.69 29.85 28.31 29.63 32.5 39.2

2% 41.52 41.52 37.9 35.95 37.63 41.26 37.08Sources: Ministry of Trade of the Republic of Indonesia, SMM

Article 5 stipulates that the HPE is the basis of the export tariff, and the proposed HPE should be submitted to the HPE Determination Team no later than 10 days prior to the expiration of the HPE. HPE will be fi nalized in Determination Team discussions and will then be submitted to the Minister of Trade.

The following table below breaks down Indonesia’s Benchmark Export Price Jun.-Dec. 2012

SMM analysis reveals that the HPE is correlated with the monthly average LME nickel price. SMM selected 1.5-1.8% Ni ore as representative to compare HPE against the monthly average LME nickel price. (See left.)

This chart clearly shows that Indonesian laterite nickel ore price movements lag one month behind the monthly average LME nickel price.



Table 6: SMM China Refi ned Nickel Output by RegionProvince November Output (Mt)Gansu 11000Jilin 500Sichuan 650Jiangxi 1100Xinjiang 850Guangxi 300Yunnan 130Shaanxi 400Liaoning 1000

Source: SMM

Table 7: CNIA China Refi ned Nickel Output by RegionProvince November Output (Mt)Jiangxi 3736Guangxi 6214Chongqin 171Sichuan 450Yunnan 245Gansu 11404Xinjiang 1025

Source: CNIA

Unit: Mt

Output MoM

10,00012,00014,00016,00018,00020,00022,00024,000

-25.0%

-12.5%

0.0%

12.5%

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37.5%

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/12Feb/

12

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12Oct/

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Figure 8: China Refi ned Nickel Output

Source: SMMNote: Statistics before July are sourced from CNIA, while statistics in and afterJuly are sourced from SMM.

Supply and DemandRefi ned NickelSMM’s survey shows that China’s refi ned nickel output in November was 15,930 mt. (See “SMM China Refined Nickel Output by Region” for detail.) Yunjiang Nickel resumed production in mid-October, adding 150 mt/month in nickel output. Xinjiang Xinxin Mining, on the other hand, cut output due to inclement weather, lowering total nickel output.

SMM expects nickel producers to increase output in January ahead of the Chinese New Year holiday in February.

0

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Imports Exports

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Figure 9: China Refi ned Nickel Import and Export

Source: SMM

The last China Customs data indicate that November’s imports of unwrought nickel (refi ned nickel and alloy) were 14,726 mt, down 22.56% YoY, and down 16.24% MoM. YTD imports through November were 142,931 mt, down 27.98% YoY.

According to the China Nonferrous Metals Industry Association (CNIA), China’s refi ned nickel output was 23,924 mt in November, up 2.13% MoM. (See “CNIA China Refi ned Nickel Output by Region” for detail.)



Price Gap between Shanghai and LME Nickel PricesDomestic Spot Prices Spot Prices Converted from LME

Unit: RMB Unit: RMB/mt

110,000130,000150,000170,000190,000210,000230,000

-40,000

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0

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Figure 10: Profi t and Loss of Imported Refi ned Nickel

Source: SMMNote: Spot prices converted from LME = (LME nickel closing prices + trade premiums) *exchange rates*1.17

64%Russia

18%Canada

South Africa 4%

9%Norway

5%Others

Figure 11: November Nickel Imports by Country

Source: SMM

Huangpu Customs 2%

Shanghai Customs 68%

18%Ningbo Customs

Hangzhou Customs 4%Guangzhou Customs 3%

Others 3%

Figure 12: November Nickel Imports by Customs

Source: SMM

FeedingProcessingTrade 2%

General trade 34%

Bonded warehouseinbound and outboundgoods 35%

29%Re-Export Trade inBonded Area

Figure 13: November Nickel Trade Type

Source: SMM

Finance-driven nickel ore imports fell in November. Port premiums held between USD 90-130/mt. Imports of Russian nickel remained stable in November.

SMM expects that China’s finance-driven nickel imports increased in December due to the year-end liquidity crunch.

Exports of unwrought nickel (refi ned nickel and alloy) were 6,113 mt in November, up 106.9% YoY. YTD exports through November were 30,810 mt, down 9.93% YoY.

As the domestic/LME nickel price ratio fell through December, nickel exports for the month are expected to have increased.

Russia remained China’s largest supplier of unwrought non-alloy nickel in November, though imports from Russia fell 32.98% MoM to 8,388.91 mt, 64% of China’s total. Imports from Canada jumped 126.84% MoM to 2,333.27 mt, 18% of China’s total, much higher than the 6% recorded a month earlier. Imports from Norway were 1,216.76 mt, down 44.79% MoM to 9% of China’s total.

Imports of unwrought non-alloy nickel via Shanghai Customs were 8,949.30 mt in November, down 30.57% from October to 68% of China’s total. Imports via Ningbo Customs were 2,320.78 mt, slipping 4.95% MoM to 18% of total imports, while those via Hangzhou Customs were 522.15 mt, up 20.58% MoM to 4% of the national total. As finance-driven nickel imports are largely routed through Shanghai, falling demand for finance-driven nickel in November explains the decline in import volumes there.

4,505.66 mt of November’s total unwrought non-alloy nickel imports went to general trade, up 38.72% MoM to 34% of total imports. Imports into bonded zones for re-export grew 42.1% MoM to 9,035.48 mt, 35% of total imports.



XinjiangGansu YunnanJilin

Unit: 10,000 Mt

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Figure 14: China Nickel Ore Output (Ni Content)

Sources: CNIA, SMM

Nickel OreChina’s nickel ore output in November was 7,927 wmt, down 7.54% MoM, but up 5.43% YoY. YTD output through November rose 25.47% YoY to 85,197 wmt.

Nickel ore output in Jilin and Gansu increased 3.57% MoM and 3.99% MoM, respectively, in November, while Yunnan’s output dropped 7.58% MoM. Xinjiang’s nickel ore output dropped most sharply, down 33.85% MoM to 731 wmt in November.

Unit: 10,000 Mt

Indonesia The Philippines Others

0100200300400500600700

Nov-11

Nov-12

Dec-11Jan

-12

Feb-1

2

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Figure 15: China Nickel Ore Imports (Physical Content)

Sources: China Customs, SMM

The Philippines 40%

Indonesia 60%

Figure 16: November Nickel Ore Imports by Country


Jiangmen Customs 9%

Nanjing Customs 15%

Tianjin Customs 21%

Shijiazhuang Customs 7%

QingdaoCustoms 22%

Others 26%

Figure 17: November Nickel Ore Imports by Customs


China imported 6.83 million wmt of nickel ore in November, up 23.32% MoM and 8.33% YoY. Restocking before the monsoon season, growing demand from China’s huge NPI capacity, and the threat posed by Indonesia’s nickel ore export ban starting next year have all contributed to China’s keen interest in importing nickel ore.

China imported 4.1 million wmt of nickel ore from Indonesia in November, up 35.08% MoM to 60% of total imports. China imported 2.72 million wmt from the Philippines in November, up 10.55% to 40% of the total. China’s laterite nickel ore and nickel ore imports from Indonesia in November were both the year’s highest. China’s laterite nickel ore imports are expected to have remained high in December due to high demand within China and the favorable mid-November to mid-December weather window for mining and shipping. SMM estimates China’s laterite nickel imports for December to be around 7 million mt.

Imports of nickel ore via Qingdao Customs were 1.47 million wmt in November, 22% of China’s total. Those via Tianjin Customs were 1.46 million wmt, 21% of China’s total. Those via Nanjing Customs were 1.06 million wmt, 15% of total imports, while those via Jiangmen Customs were 583,300 wmt, 9% of the national total. Aggregated imports via other Customs regions came to 1.77 million wmt, 26% of the national total. The reduction in finance-driven importation of nickel explains the drop in volumes transiting Shanghai Customs in November. Restocking by NPI producers in Shandong and Jiangsu, combined with high operating rates at NPI producers in Inner Mongolia despite inclement weather, contributed to November’s higher import volumes. That being said, a decline in exports of low-Ni/high-Fe ore from the Philippines cut import volumes transiting Shijiazhuang Customs 38% in November, dropping Shijiazhuang Customs’ share of the national total from 12% to 7%.



Tianjin Port Rizhao Port Lanshan PortLianyungang Port Jingtang Port

0300600900

1,2001,5001,800Unit: 10,000 Wmt

11/11

/2412

/1/5

12/2/

24

12/4/

12

12/5/2

412

/7/5

12/8/

16

12/9/

27

12/11

/15

12/12

/27

Figure 18: Nickel Ore Inventory at China Major Ports

Source: SMMNote: Nickel ore inventories calculated by SMM account for 75% of China’s total nickel ore inventories. As proportion of nickel ore stored at Jingtang port is increasing, SMM added inventories at Jingtang port as of May 2012.

NPIOvercapacity plagued China’s NPI industry in 2012. SMM surveys of 190 NPI producers indicate that total NPI capacity hit 915,600 mt/yr against an estimated output (Ni content) of 360,000 mt in 2012. The proportion of NPI producers using electric arc furnaces continued to grow.

The growing cost of nickel ore is pushing China’s NPI produces are explore cost-control methods. This has benefi ted energy-effi cient Rotary Kiln-Electric Furnace (RKEF) technology, causing it to be adopted widely and rapidly. NPI producers using RKEF technology have surged to account for 30% of China’s total NPI output since the Tsingshan Group put its Dingxin RKEF project into operation in late 2010.

Meanwhile, R&D continues on the even more promising “Rotary Kiln Direct Reduction” technology.

SMM statistics show 16.77 million wmt in nickel ore inventories at China’s major ports at the end of December, down 241,000 wmt, or 1.42% MoM. Most port shipments were of nickel ore futures by NPI producers. Shipments by traders were few and far between. China’s nickel ore import volumes are expected to remain high, possibly even increase, but port inventories will fall slightly. This is because most arriving shipments are from futures contracts purchased by NPI producers that will be directly transshipped to the NPI producers, not stored at port. Simultaneously, the year-end liquidity crunch encouraged many traders to lower prices to sell down inventories at port.

S

Table 8: Stable NPI Supply amidst Overcapacity in 2012

No RegionNumber of Producers

Furnaces by Type Capacity by Specifi cation Capacity (mt Ni content)Electric Arc Blast Electric Arc (KVA) Blast (m3) Electric Arc Blast

1 Inner Mongolia 40 92 0 1,287,000 0 147,086 0

2 Shandong 29 47 38 919,600 6,860 105,097 81,497

3 Jiangsu 22 44 11 995,000 1,916 113,714 22,762

4 Liaoning 16 46 0 606,400 0 69,303 0

5 Hebei 12 14 9 171,200 1,315 19,566 15,622

6 Shanxi 11 15 9 243,800 2,390 27,863 28,393

7 Ningxia 9 21 0 345,500 0 39,486 0

8 Guizhou 6 12 1 130,300 7 14,891 83

9 Guangxi 6 5 5 97,400 1,460 11,131 17,345

10 Fujian 5 13 2 290,100 900 33,154 10,692

11 Guangdong 2 6 0 264,000 0 30,171 0

12 Others 32 67 21 616,050 4,999 70,406 59,388

13 Subtotal 190 382 96 5,966,350 19,847 681,869 235,782

Total 917,651

China NPI Available Capacity 2012



Unit: 1,000 Mt

05

101520253035

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

10%~15% 4%~8% 1%~2%

Figure 19: China NPI Output by Grade in 2012

Source: SMM

SMM’s survey of 190 NPI producers across China show that NPI available capacity nearly hit 920,000 mt in 2012, 680,000 mt from electric arc furnaces and 240,000 mt from blast furnaces. The number of electric arc furnaces increased to 382 against only 96 blast furnaces. SMM estimates 2012’s NPI output (Ni content) around 360,000 mt, equivalent to only 39% of total capacity. An increasing concentration of production around blast furnace-based producers in also evident. Despite chronic overcapacity, China’s NPI output was held relatively stable by demand from stainless steel mills. Fluctuations in the LME nickel price narrowed between converging cost fl oors and demand elasticity.

China NPI Output 2012NPI Contributes 360,000 Mt of (Ni) Outptut

Of the total 101 surveyed producers, 72 of them are high-grade NPI producers, 12 of them are medium-grade NPI producers, and 17 of them are low-grade NPI producers, and 5 of them both producing medium-grade NPI and low-grade NPI.

Monthly output is adjusted by according to capacity proportion at the 101 producers.

With increasing demand for NPI from stainless steel capacity expansion in 2012, SMM expects that total supply of NPI grow by 27% on a yearly basis to 360,000 mt in 2012.

NPI Output up 3.26% MoM to 31,700 Mt in DecemberTable 9: NPI Output by Grade in 2012 Month 10%-15% 4%-8% 1%-2% TotalJan. 21.9 5.2 3.5 30.5

Feb. 23.3 4.6 3.4 31.3

Mar. 21.0 4.4 5.8 31.2

Apr. 23.1 4.0 5.7 32.9

May 24.2 3.3 5.7 33.1

Jun. 21.4 1.8 4.9 28.1

Jul. 18.8 1.2 6.4 26.4

Aug. 17.6 2.7 5.4 25.8

Sep. 19.5 2.3 5.0 26.8

Oct. 23.7 2.9 5.1 31.6

Nov. 23.8 2.8 4.1 30.7

Dec. 25.0 2.6 4.1 31.7 Source: SMM

Unit: 1,000 Mt

Increasing output from RKEF-based producers in Shandong and Jiangsu largely drove the increase in medium and high-grade NPI output in December.



0%

20%

40%

60%

80%

100%

120%

2009 2010 2011 2012RKEF proportion Proportion of high-grade NPIProportion of medium-grade NPI Proportion of low -grade NPI

Figure 20: NPI Production by Specification 2009-2012

Source: SMM

Newcaledonia10%

Japan 19%Former YugoslavRepublic of Macedonia 23%

Columbia 17%

The Dominican republic 19%

Brazil 12%

Figure 21: November Ferronickel Imports by Country

Source: SMM

ShanghaiCustoms 39%

TaiyuanCustoms 52%

Ningbo Customs 2%Hangzhou Customs 2% Qingdao Customs 5%

Figure 22: China November Ferronickel Imports by Customs

Source: SMM

China imported 21,628.89 mt of ferronickel in November, up 70.03% from October’s 12,720.3 mt and 11.89% up from last year’s 19,33 mt. YTD imports through November were 223,987.90 mt. China exported 800.79 mt of NPI in November.

China imported only 4,043.159 mt of Japanese ferronickel in November, a 565.079 mt increase from October’s 3,478.08 mt. The average transaction price fell USD 228.05/mt to USD 3,044.13/mt. YTD imports from Japan through November totaled 46,009.7 mt. Imports of Columbian ferronickel were 3,673.549 mt, down 350.741 mt from November’s 4,024.29 mt, pulling the average price down USD 480.1/mt to USD 6,204.99/mt. A total of 56,554.589 mt was imported from Columbia in the fi rst 11 months. China imported 4,948.741 mt of ferronickel from Macedonia in November, up 3,300.531 mt from October’s 1,648.21 mt, driving the average price up USD 397.6/mt to USD 4,049.48/mt. 28,798.791 mt was imported from Macedonia over the fi rst 11 months of 2012. China imported 2,106.39 mt of ferronickel from New Caledonia in November, down 116.03 mt from October’s 2,222.42 mt as the average price hit USD 4,168.61/mt, up USD 342.018/mt. YTD imports from New Caledonia through November totaled 24,627.38 mt. Ferronickel imports from Brazil in November were 2,500.501 mt at an average price of USD 5,753.75/mt.

The table above indicates that the proportion of high-grade NPI increased from 65.27% in 2011 to 72.31% in 2012. Mounting losses forced many medium-grade NPI producers to halt production in Q3. This was exacerbated by stainless steel mills preferring high-grade over medium-grade NPI. Proportion of medium-grade NPI fell to 10.47% and low-grade NPI grew to 16.38%.

Meanwhile, the proportion of NPI from the RKEF process surged from 7% in 2011 to 30% in 2012, and may soar to over 40% in 2013.

RKEF Contributions to Total Nickel (Ni Content) Supply Surge from 7% to 30% in 2012 and the Proportion May Soar to 40% in 2013

Ferronickel Imports Up 70.03% in November



Wuxi inventory Foshan inventory

Unit: Mt

050,000

100,000150,000200,000250,000300,000350,000400,000

Dec-11

Dec-12

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Figure 25: China Stainless Steel Inventory

Source: Industry data

#200 #300 #400

0%

10%

20%

30%

40%

50%

Nov-11

Nov-12

Dec-11Jan

-12Fe

b-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-1

2Oct-

12

Figure 24: November Stainless Steel Output at Major Producers by Specifi cation

Source: Industry data

China’s major stainless steel mills have grown in number to 33. The top 10 are: Taiyuan I/S, Baosteel, Pohang Stainless, JISCO Stainless, Qingpu Stainless, Ningbo Baoxin Stainless, Lianzhong Stainless, Taishan I/S, Shanghai ThyssenKrupp, and Kunshan Dageng Stainless. The remaining 23 (in no particular order) are: Chengde Specialty Steel, Southeast Specialty Steel, Dongyi Fogang Specialty Steel, Fujian Wuhang Stainless, Guangdong Jinxing Heavy Industry, Henan Jinhui Stainless, Jiangxi Shengda Stainless, Inner Mongolia Huaye Special Steel, Ningbo EU Stainless, Ningbo Tiandi Stainless, Tsingshan Dingxin Stainless, Ruitian Steel, Youyi Specialty Steel, Tsingshan Qingyuan Stainless, Shanghai Yatai Stainless, Taizhou Huadi Stainless, Ningbo Quanxing Stainless, Lianyungang Huale Alloy, Jiangsu Tianhua Stainless, Guangxi Jinhai Stainless, Shanghai Qichang Stainless, the Shandong Wangda Group, and Lianyungang Jinxinli Stainless.

Charting stainless steel output by specifi cation shows that output of #200 stainless rose for a third consecutive month. Output of #300 stainless declined noticeably, while that of #400 stainless remained fl at.

Stainless steel inventories in the Wuxi and Foshan spot markets dropped from late November’s 313,321 mt to 305,655 mt in late December, down 2.45% MoM.

The proportion of cold-rolled stainless in the Wuxi spot market was 55.47%. Hot-rolled stainless was 44.53%. 10.35% of this was #200 stainless, 73.08% was #300, and 16.57% was #400 stainless steel. In Foshan, the proportion of cold-rolled stainless steel was 48.62%. Hot-rolled stainless steel was 53.38%. Of this, 33.90% was #200 stainless, 57.04% was #300, and 9.06% was #400 stainless steel.

Stainless SteelAccording to the CNIA, stainless steel output from China’s largest producers fell 1,600 mt to 1.11 million in November. Output of #200 stainless was 428,800 mt, up 25,600 mt to 38.73% of the national total. #300 stainless output was 420,200 mt, down 14,400 mt to 37.59% of the total. Output of #400 stainless was 258,200 mt, down 12,800 mt to 23.32% of the total.

Unit: 10,000 Mt

#200 #300 #400

20

40

60

80

100

120

Nov-12

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Figure 23: November Stainless Steel Output at Major Producers

Source: SMM



Unit: USD/mt

14000

16000

18000

20000

22000

＃1Spot Nickel Prices Converted LME Nickel Prices11

-12-06

11-12

-23

12-01

-09

12-01

-26

12-02

-12

12-02

-29

12-03

-17

12-04

-03

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-20

12-05

-07

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-24

12-06

-10

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-27

12-07

-14

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-31

12-08

-17

12-09

-03

12-09

-20

12-10

-07

12-10

-24

12-11

-10

12-11

-27

12-12

-14

12-12

-31

Figure 26: SMM Nickel Price Vs LME Nickel Price

Source: SMMNote: #1 Nickel spot prices converted = (SMM average prices of #1 refi ned nickel/1.17/exchange rates)-trade premiums

Table 10: Nickel Price MovementAverage Price on

December 31 (RMB/Mt)Daily Average Price

November 30 (RMB/Mt)MoM

SMM #1Nickel Price 121547.62 117106.82 3.79%Source: SMM

Table 11: Jinchuan Group Ex-works Nickel Price Adjustment in DecemberDate Ex-Works Price(RMB/Mt) MoM (RMB/Mt)Dec. 3 124000 2500Dec. 5 122500 -1500Dec. 6 123000 500Dec. 11 124000 1000Dec. 14 121500 -1500Dec. 20 122500 1000Dec. 24 119000 -3500Total Change -1500 -1.23%

Source: SMM

Price MovementNickelLME:

The scope of LME nickel price swings in December was considerable. Better-than-expected employment data from the US in combination with improving economic data in China boosted base metals, driving LME nickel prices to a high of USD 17,913/mt. The market then retreated again, pulling LME nickel back down, as concerns over the “fi scal cliff” in the US mounted. LME nickel closed out December at a low of USD 17,040/mt.

The US economy added 155,000 nonfarm positions in December, according to figures released January 4, better than the 152,000 forecast. Marked improvements in the ISM manufacturing index and ADP employment data boosted market confi dence, cooling appetites for the US dollar to the benefi t of LME nickel. That, combined with the report on a resolution of the “fi scal cliff”, should allow LME nickel prices to swing between USD 16,500-18,500/mt in January.

Domestic Spot Market:

The year-end liquidity crunch bit into purchasing in December, leaving nickel trading quiet. The domestic/LME nickel price ratio fell throughout the month.

The average SMM price of #1 refined nickel closed out December at RMB 121,547.62/mt, up 3.79% MoM.

Jinchuan Group adjusted its ex-works nickel prices seven times in December before closing out the year at RMB 119,000/mt.

Improving liquidity among downstream buyers should enable the spot nickel market to pick up marginally.



Nickel Ore (Ni 0.9-1.1%) Nickel Ore (Ni 1.4-1.6%)Nickel Ore (Ni 1.8-1.9%) Nickel Ore (Ni 1.9-2.0%)

Unit: RMB/wmt

200

400

600

800

1,000

2011

/12/16

2012

/1/5

2012

/1/25

2012

/2/14

2012

/3/5

2012

/3/25

2012

/4/14

2012

/5/4

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/5/24

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/6/13

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/7/3

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/7/23

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/8/12

2012

/9/1

2012

/9/21

2012

/10/11

2012

/10/31

2012

/11/20

2012

/12/10

2012

/12/30

Figure 27: Nickel Ore Price Trends at China Major Ports

Source: SMM

Nickel OreDomestic Market:High-Grade Nickel Ore Prices Edge Down

Relatively high import volumes in November and December meant that the supply of nickel ore was ample by the end of the year. This was exacerbated by a subset of traders cutting prices to spur sales out of their port inventories against the year-end liquidity crunch. NPI producers responded only tepidly to this, having already rebuilt adequate inventories. As such, the price of high-grade nickel ore (Ni 1.8-2.0%) actually declined RMB 5/wmt in December. Although low-end LME nickel prices rose to USD 17,000-17,900/wmt in December after closing out November near USD 16,000/wmt, nickel ore prices failed to follow suit.

Most NPI producers began restocking early. The Tsingshan Group offered nickel ore prices (ex ship’s hold) in early January at RMB 385/wmt for ore (Ni 1.8%) with tax, RMB 445/wmt for (Ni 1.9%), and RMB 515/wmt for (Ni 2.0%), down RMB 15/wmt.

The Tsingshan Group has already placed orders for February delivery as it only purchases ore futures. These bid prices thus are set for post-February orders.

SMM believes other companies are likely to put pressure on nickel ore prices in 2013 through bundled procurement, emulating Tsingshan, in an effort to undermine seller dominance in the nickel ore market.

Nickel ore prices already lacked price support in December due to adequate supplies and fl at demand.

Medium-Grade Nickel Ore Prices Stable

Trading in medium-grade nickel ore remained moderate in December with prices little changed. Producers of medium-grade NPI were little interested in buying ore against their own low operating rates. Demand from producers mixing medium- and high-grade nickel ore remained stable. Despite the limited transaction volumes at China’s ports, the rainy season in the Philippines tightened supplies of medium-grade ore, lending some support to prices.

Low-Grade Nickel Ore Prices Inch Up

The slight increase in low-grade nickel ore prices was the result of expectations on declining nickel ore supplies from the Philippines due to the rainy season. Spot supplies at ports was adequate, with inventories at Jingtang, including those of steel mills, hitting 3.2 million mt. Caofeidian also reported over 1 million mt in high-Fe/low-Ni ore inventories. Transportation and loading diffi culties crimped futures supply, buoying futures prices for nickel ore.

Table 12: Nickel Ore Price at China Major Ports

GradeAverage Price on

December 30Average Price on

November 30MoM

0.9-1.1% 300 295 +1.69%1.4-1.6% 300 300 0%1.8-1.9% 490 495 -1.01%1.9-2.0% 565 570 -0.88%

Source: SMM

Unit:RMB/wmt



05

10152025Unit: USD/wmt

Philippines/South China Ports Philippines/North China PortsIndonesia/South China Ports Indonesia/North China Ports

2012

/5/23

2012

/6/6

2012

/6/20

2012

/7/4

2012

/7/18

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/8/1

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/8/14

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/8/28

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/9/11

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2012

/10/16

2012

/10/26

2012

/11/7

2012

/11/21

2012

/12/5

2012

/12/17

2012

/12/31

Figure 28: Sea Freight Charges from Indonesia/Philippines to China

Source: SMM

Overseas MarketShipping Market

Sea freight fees fell USD 1/wmt and USD 0.25/wmt in December for shipments from the Philippines to south and north China ports, respectively. Charges for shipments from Indonesia to south China ports were down USD 1.5/wmt, and those to north China ports were down USD 0.75/wmt.

The monsoon season in Indonesia and the Philippines imped mining and loading operations in the two countries. The Christmas and New Year holidays idled even more shipping capacity as many overseas mines closed. Moreover, ample spot ore inventories in China’s domestic market, combined with a lack of buying interest among importers, caused nickel ore shipping charges to drop slightly in December.

Freight fees for shipments from Indonesia to Tianjin were USD 13.5-14/wmt, on new vessels, and slightly lower at USD 13/wmt on older vessels.

Overseas Price

Though advancing LME nickel prices in December did exert a positive infl uence on FOB prices for imported nickel ore, this was offset by MoM growth in supply. As such, FOB prices held steady through December, with the exception of high-grade laterite nickel ore (Ni 1.8%) from the Philippines, which climbed 7.5% to USD 43/wmt.

Table 13: FOB Indonesia Nickel Ore Price Grade Price on Dec. 30 Price on Nov. 31 MoM1.50% 23 23 0%1.80% 39 39 0%1.90% 46 46 0%2.00% 55 55 0%

Source: SMM

Unit:USD/wmt

Table 14: FOB Philippines Nickel Ore Price Grade Price on Dec. 30 Price on Nov. 31 MoM0.9-1.1% 22 22 0%1.50% 22 22 0%1.80% 43 40 7.50%

Source: SMM

Unit:USD/wmt

Unit: RMB/mtu

NPI (1.6-1.7%) NPI (4-6%)

NPI (10-15%) Stainless Steel Basic Stock (9-10%)

100013001600190022002500

11/11

/27

11/12

/17

12/01

/06

12/01

/26

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/15

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/06

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/26

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/02

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/22

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/12

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/01

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/21

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/11

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/31

Figure 29: China NPI Prices by Grade

Source: SMMNote: Unit for NPI (Ni 1.6-1.7%) i s usually RMB/mt, but the chart above converts the unit for NPI (Ni 1.6-1.7%) into RMB/mtu.

NPICosts Hold NPI Prices FirmHigh-Grade NPI Prices Remain Flat with Increase Curbed by Financial Pressure

China’s stainless steel market remained tepid through 2012. Some stainless steel mills sought to take advantage of NPI producers’ urgent need for cash at year’s end, extracting NPI at heavily discounted prices from distressed producers last month.

Comparison of NPI bid prices from a stainless steel mill in Jiangsu and LME nickel prices in December:



Table 15Date Stainless Steel Procurement Price LME Nickel Price2012/12/7 RMB 1,170/mtu USD 17,225/mt2012/12/14 RMB 1,180/mtu USD 17,832/mt2012/12/21 RMB 1,170-1,180/mtu USD 17,404/mt2012/12/28 RMB 1,170/mtu USD 17,158/mt

As can be seen above, the price of high-grade NPI did not track LME nickel prices in December.

LME nickel prices averaged USD 17,518.21/mt in December, up USD 1,124.89/mt (6.86%) from November’s USD 16,393.32/mt.

Although NPI prices are not highly correlated with LME nickel prices, the weakening in the price of high-grade NPI against strong LME nickel prices reflects anemic demand for NPI and stainless steel in China. SMM expects high-grade NPI prices to remain fl at in January.

Low Prices on High-Grade NPI Weigh Down Medium-Grade NPI PricesSagging demand meant that prices on medium-grade NPI failed to pick up. Prices on NPI (Ni 4-6%) remained little changed at RMB 1,190-1,210/mtu (to the factory, tax included), while those for medium-grade NPI (Ni 6-8%) were also fl at at RMB 1,180-1,200/mtu (to the factory, tax included). Prices on medium-grade NPI remained low due to the weakness in the price of high-grade NPI. The traded price for medium-grade NPI (Ni 4-6%) was RMB 1,220/mtu (to the factory) in Shandong in December, while that for medium-grade NPI (Ni 6-8%) was RMB 1,220/mtu (tax included, to the factory). Medium-grade NPI prices should remain stable in January, largely supported by high production costs.

Complementary Material Prices Remain High, Low-Grade NPI Price Up Slightly Table 16

DateSecond-Class

Metallurgical Coke Price (RMB/mt)

Ore Prices (RMB/wmt)

Cost (RMB/mt)

Average Ex-works

(RMB/mt)2012/7/23 1650 320 2965 3425

2012/7/24 1650 320 2965 3425

2012/7/25 1650 320 2965 3425

2012/7/26 1650 310 2940 3425

2012/7/27 1650 310 2940 3425

2012/12/24 1650 300 2915 2975

2012/12/25 1650 300 2915 2975

2012/12/26 1650 300 2915 2975

2012/12/27 1650 300 2915 2975

2012/12/28 1650 300 2915 2975



Table 17: China NPI Price

GradeAverage Price

on December 31Average Price

on November 30MoM

NPI(1.6-1.7%) RMB 2,975/mt RMB 2,925/mt +1.71%NPI(4-6%) RMB 1,200/mtu RMB 1,200/mtu 0%NPI(6-8%) RMB 1,190/mtu RMB 1,190/mtu 0%NPI(10-15%) RMB 1,165 /mtu RMB 1,165 /mtu 0%

Source: SMM

Unit: RMB/Mt

Flat Average Price Roll Average Price

15000

17000

19000

21000

23000

25000

2011

/8/5

2011

/8/31

2011

/9/27

2011

/10/26

2011

/11/21

2011

/12/15

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/1/11

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/8/17

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/9/12

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/10/15

2012

/11/8

2012

/12/4

2012

/12/28

Figure 30: #300 Stainless Steel Price Movement

Source: SMM

Stainless SteelTrading Remains Muted Despite Price CutsThe average price of 201/2b stainless steel was RMB 11,200/mt in December, down RMB 100/mt from November. The average price of 304/2b from major mills – such as Taiyuan I/S, Ningbo Baoxin Stainless, and Zhangjiagang Pohang Stainless – fell RMB 100/mt MoM to RMB 18,167/mt in December. The average price of 430/2b remained unchanged at RMB 9,500/mt.

China’s stainless steel market remained sluggish in December. This was particularly evident in #304 cold-rolled stainless in Wuxi. Most traders were willing to cut prices for sales as the year-end liquidity crunch set in.

Although several major producers raised their January’s quotations on #304 stainless slightly, the market has not yet responded clearly as investors remain cautious.

Soft demand curtailed #201 stainless sales in December. Transaction volumes began declining in late December as traders reported diffi culties in liquidating inventories. Few transactions were concluded near mainstream prices, and most traders cut quotations against waning sales.

Table 18: China Stainless Steel Price Specifi cation December 31 November 30 MoM 201/2B RMB 11,200/mt RMB 11,300/mt -0.88%304/2B RMB 18,067/mt RMB 18,267/mt -1.10%430/2B RMB 9,500/mt RMB 9,500/mt 0%

Source: SMM

Although the prices on complementary materials bounced back to levels last seen in late July 2012, ex-works prices for low-grade NPI (to the factory) failed to rise appreciably. Cost pressures largely accounted for the marginal price increases observed in low-grade NPI in December. Tight liquidity in the market promises to keep prices from improving signifi cantly in January.



SMM Exclusive AnalysisIndonesia’s Nickel Ore Output Target for 2013 at 37 Mln mtIndonesia’s Ministry of Energy & Mineral Resources projects that the country will produce 37 million mt of nickel ore in 2013, higher than 2012’s 35 million mt target.

Indonesia Sets Benchmark Nickel Ore Export Price for January Bachrul Chairi, Director General for Foreign Trade at Indonesia’s Ministry of Trade, announced that the country’s nickel ore exports benchmark prices for January are USD 14.51-39.68/mt, up from December’s USD 13.56-37.08/mt. Indonesia’s iron ore export benchmark prices for January are USD 15.96-75.19/mt, off December’s USD 18.79-88.53/mt.

Overcapacity Weighs on Nickel Prices in 2013Nickel’s market share was eroded in 2012 due to global oversupply and upgrades in the NPI segment. Weakening demand left LME nickel as the worst performer among base metals. A surge in new NPI capacity suggests that the global supply of nickel will remain in surplus this year, weigh nickel prices down.

Europe’s debt crises and China’s economic slowdown undercut nickel demand growth in 2012. The International Nickel Study Group (INSG) reports a surplus of nickel on the global market of 55,600 tons over the fi rst ten months of 2012. The World Bureau of Metal Statistics provided an even higher estimate of 81,000 mt for January-October, 2012. This surplus was clearly evident in the low nickel prices and an increase in inventories outstripping other metals.

Despite this surplus supply, nickel producers in China and overseas started new projects in 2012. China’s Shaanxi Huaze Nickel & Cobalt plans to add 20,000 mt/yr of capacity in 2H 2013. Ni&Co Guorun New Materials has completed construction of its new power plant, paving the way for its planned capacity expansion. Jinchuan Group completed its 60,000 mt/yr nickel project in 2012, boosting its total nickel capacity to 200,000 mt/yr. Overseas, Sherritt’s Ambatovy project produced 2,370 mt of nickel in 3Q on its way to its full capacity of 60,000 mt. Xstrata’s Koniambo project is scheduled to enter production this month and is expected to hit 60,000 mt in nickel output in two years. Sumitomo Metal & Mining’s 50,000 mt/yr Taganito project in the Philippines is scheduled for completion in 4Q, 30,000 mt/yr of this will be nickel capacity.

Meanwhile, the most recent releases of economic data indicate that the manufacturing and housing sectors in China, the US and the Eurozone continued to grow through 4Q, albeit slowly. Global nickel demand is thus expected to continue lagging behind supply.

Added to this is the large expansion in NPI expected in China this year, which, combined with technical upgrades in the NPI segment, promise to further undermine demand for refined nickel. As such, excess supply will continue to weigh nickel prices down in 2013.



LME Nickel Sets to Enter New Cycle, Prices Expected to Rise LME nickel prices have crossed a critical threshold setting a new trajectory. SMM expects nickel prices to rise in the short term.

The chart of Fibonacci numbers below indicates that LME nickel prices have leveled off following the previous round of increases and are now positioned to enter the next swing cycle.

From a technical perspective, LME nickel prices have been in a correction phase as described below. Although MACD, KDJ and RSI indicators remain strong, a weakening trend can be traced from the KDJ indicator.

The pullback in LME nickel prices may be attributed to resistance as the Fibonacci line hit USD 17,900/mt which confronted LME nickel during previous rises. This resistance coincides with that of the Gann line.

The following candle stick chart helps explain the expected rise in LME nickel prices. The chart depicts LME nickel price movements over the past month and indicates that LME nickel prices are now more likely to rise following the correction. The 3-hour candle stick chart below similarly indicates an upward trend.



Looking further out on the horizon, a ‘W’ curve on the weekly candle stick for LME nickel signals a higher possibility for a recovery in prices. This is naturally tempered by uncertain external factors, the overall economic climate in particular.

Stainless Steel Mills Release January NPI Procurement Prices Major stainless steel mills across China announced their NPI bid prices for January by January 5, as follows.Table 19

Stainless Steel Mill ProductDecember Bid Price

January Bid Price

ChangePayment Terms

Note

Taiyuan I/S NPI (Ni 10-15%) RMB 1,170/mtu RMB 1,180/mtu RMB 10/mtu Cash Tax included, delivery to factory

Baosteel NPI (Ni 10-15%) RMB 1,180/mtu RMB 1,170/mtu RMB -10/mtu Cash Tax included, delivery to factory

Jiuquan I/S NPI (Ni 10-15%) RMB 1,180/mtu RMB 1,180/mtu -- Cash Tax included, delivery to factory

Tsingshan Steel NPI (Ni 10-15%) RMB 1,180/mtu RMB 1,185/mtu RMB 5/mtu Cash Tax included, delivery to factory

Fujian Dingxin Nickel NPI (Ni 10-15%) RMB 1,180/mtu RMB 1,185/mtu RMB 5/mtu Cash Tax included, delivery to factory

Yangjiang Stainless NPI (Ni 10-15%) RMB 1,180/mtu RMB 1,185/mtu RMB 5/mtu Cash Tax included, delivery to factory

Unnamed stainless mill in southwest China NPI (Ni 10-15%) RMB 1,190/mtu RMB 1,210/mtu RMB 20/mtu Cash Tax included, delivery to factory

Guangzhou Lianzhong Stainless NPI (Ni 10-15%) RMB 1,190/mtu RMB 1,190/mtu -- Cash Tax included, delivery to factory

Zhangjiagang Pohang Stainless NPI (Ni 10-15%) RMB 1,170/mtu RMB 1,180/mtu RMB 10/mtu Cash Tax included, delivery to factory

Jiangsu Xinma Stainless NPI (Ni 10-15%) RMB 1,180/mtu RMB 1,160/mtu RMB -20/mtu Cash Tax included, delivery to factory

Jiangsu Xinma Stainless NPI (Ni 4-6%) RMB 1,220/mtu Cash Tax included, delivery to factory

Jiuquan I/S NPI (Ni 4-6%) -- RMB 1,220/mtu -- Cash Tax included, delivery to factory

Zhangjiagang Pohang Stainless NPI (Ni 4-6%) RMB 1,190/mtu Cash Tax included, delivery to factory

Unnamed stainless mill in southwest China NPI (Ni 1.6-2.0%) -- RMB 2,900/mtu -- Cash Tax included, delivery to factory

Taishan I/S NPI (Ni 1.6-2.0%) RMB 3,050/mt RMB 3,050/mt -- Acceptance Tax included, delivery to factory

Guangzhou Lianzhong Stainless NPI (Ni 1.6-2.0%) RMB 3,050/mt RMB 3,050/mt -- Cash Tax included, delivery to factory

Source: SMM



Stainless steel mills’ NPI procurement prices changed little in January. Although NPI prices are trending up overall, their growth lags LME nickel.

SMM data indicate that the average LME nickel price rose USD 1,124.89/mt in December.

Indonesia Optimistic It Can Implement Export Ban in 2014 Thamrin Sihite, the Director General of Minerals & Coal at Indonesia’s Ministry of Energy & Mineral Resources, said December 17 that the Bintang Delapan Group is building a nickel smelter in Sulawesi Tengah, while Antam is building a smelter-grade alumina (SGA) plant in Mempawah, Kalimantan Barat.

Bintang will reportedly invest USD 1 billion in a 30,000 mt/yr ferronickel plant in cooperation with China-based Decent Investment.

Indonesia’s Antam and China’s Hangzhou Jinjiang will jointly build a USD 1 billion aluminum plant with a capacity expected to hit 1.2 million mt by 2016.

PT Meratus Jaya Iron and Steel, jointly run by PT Krakatau and Antam, also plans to invest IDR 117 million (RMB 757 million) to build a plant in Batulicin, Kalimantan Selatan. The plant is scheduled to begin producing sponge iron in 2013 at a capacity of 315,000 mt/yr.

Indonesia’s government remains optimistic that it will be able to implement ban on the export of raw ores in 2014. According to Thamrin Sihite, 154 proposals have been submitted towards building plants in Indonesia, which he believes will aid in the ban being implemented smoothly.

Sluggish Downstream Demand Drives NPI Prices down 2012NPI prices failed to rebound at the end of 2012, even though LME nickel prices advanced. SMM believes that the sluggish demand amid bearish performance of stainless steel market is the major reason behind weak NPI prices.

Figure 31: Price Comparison of SMM #1 Nickel, NPI (Ni 10-15%) and 304/2B Stainless Steel

Source: SMM

Unit: RMB/mtUnit: RMB/mtu

1,1001,1501,2001,2501,3001,3501,400

16,500

17,500

18,500

19,500

20,500

Jan-12

Feb-12

Mar-

12

Apr-12

May

-12

Jun-12

Jul-1

2

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

SMM #1 Nickel NPI (Ni 10-15%) 304/2B Stainless Steel

Boosted by implementation of QE3 in the US, LME nickel prices and stainless steel both advanced slightly in August. During November, Greece successfully received bailout fund and China and the US both reported upbeat economic data, which boosted long momentum and sent LME nickel prices higher.



However, when LME nickel prices rebounded in 2H 2012, NPI prices failed to advance along with LME nickel prices, and stainless steel mills were not hurry to purchase NPI. This was mainly due to soft demand from stainless steel mills, as they were under tight cash fl ow pressure at the end of year. Some stainless steel traders tried to move goods at low prices, but still failing to boost transactions.

In order to cut costs, stainless steel mills reduced purchases for raw materials and tried to clear inventories.

With regard to NPI price outlook in 2013, SMM believes the demand from stainless steel sector may improve as the NDRC and the Ministry of Railways approved a large amount of infrastructure projects in December 2012. If demand for stainless steel recovers, prices for NPI may advance.



NewsEconomic News

The session of China Politburo was held on December 4, with the quality and efficiency of economic growth emphasized, which was regarded as a sign of tolerance to milder GDP growth.

FOMC of the Fed announced to keep to ultra low interest rates unchanged at 0-0.25% given the above 6.5% unemployment rate and the less than infl ationary rate expected in the next two years. Meanwhile, the Fed will buy an extra USD 45 billion of Treasuries on top of the USD 40 billion in MBS each month after the Operation Twist program expires.

The latest data released by the Ministry of Railways show that China’s fi xed-asset investment in railways through November hit RMB 506.97 billion, up 3.1% YoY. This included RMB 431.93 billion in construction, up 9% YoY. The investment for 2012 may be close to RMB 100 billion as the Ministry would invest more in construction to complete their plan for 2012.

A moderate growth in national fi nancing scale and slight increase in loans for 2013 was proposed at the Central Economic Work Conference held in Beijing December 15-16. It was also noted that the exchange rate for RMB should be held steady so as to lower fi nancing cost for economic development.

Data from the Eurostat reveal that the Eurozone export value in October after seasonal adjustment was EUR 156 billion, down for the second month. The Eurozone trade surplus in was EUR 10.2 billion in October, higher than September’s EUR 9.5 billion and a defi cit of EUR 700 million a year ago.

The US House of Representatives formally passes "fiscal cliff" bill with 257-167 vote on January 2, 2013, putting an end to the US fi scal cliff talks. The bill increases personal income tax rates of households with annual income exceeding USD 450,000 in 2013, and extends unemployment benefi ts by a year. Meanwhile, the USD 110 billion spending cuts scheduled to be launched at the beginning of 2013 is postponed for another two months.

The National Development & Reform Commission (NDRC) released the list of 21 investment projects approved December 24, making the total amount of approved projects for the month up to 94.

The major guidelines of China’s new-type urbanization program have been developed. Sources revealed that the program will be more people-oriented, focusing on improving residents’ lives, perfecting the function of urban, the reasonable layout of cities and paralleled development of rural and urban areas. Besides, the combination of industrialization, modernization of agricultural, and urbanization is also highlighted.

A report jointly released by the Reuters and the University of Michigan indicates that the US Consumer Confi dence Index dropped to the lowest level since July of 72.9 in December, compared with November’s 82.7.

The U.S. Treasury announced its first batch of emergency measures December 26 to delay the date at which the US will hit its debt ceiling. As budget talks have come to a standstill, discussions on raising the country’s “debt ceiling” have been delayed. The Treasury suspended sales of State and Local Government Series securities from December 28. This measure has been enacted several times over the past 20 years to keep the country from hitting its debt ceiling.

China Central Government Sets Tune for Economic Work 2013

Fed Launches QE4

Railway Construction Investment Nears to RMB 100 bln

Central Economic Work Conference: Investment and Loans to Increase

Eurozone Exports Down Again, October Trade Surplus at EUR 10.2 Bln

US Fiscal Cliff Issue Resolved

NDRC Approved 94 Investment Projects in December

Guidelines for New-type Urbanization Program Developed

US Consumer Confidence Index Slump to Five-Month Low in December

US Treasury Plans Emergency Measures as US Nears Debt Limit



Metal NewsXstrata has completed construction of the fi rst production of its Koniambo nickel project located in New Caledonia. The first line is planned to come online in 4Q 2012, but the schedule was postponed to January. Xstrata plans to complete building the second production line in 2Q 2013 and put it into full operation in late 2014, making the total capacity of the two lines to 60,000 mt/yr. This project will also be equipped with dressing plants and conveyors for conveyors on land.

Construction of Fangchenggang nickel alloy project under Jinguang Group has been progressing smoothly since November 2011 when it was initiated, with #1 and #2 furnaces being installed. The project is expected to start trial production in 1H 2013.

An offi cial from the Public Procurement Service of South Korea revealed that the organization plans to purchase 127,266 mt in base metals in 2013 with the total value estimated at USD 668 million, up 20% from 2012’s level.

The alloy surcharge of European stainless steel mills in December dropped over EUR 113/mt (USD 147/mt). Alloy surcharge for 304 2mm cold-rolled stainless steel plate produced by the Aperam was EUR 1,220/mt (USD 1,581/mt), down EUR 136/mt from November’s EUR 1,356/mt.

China Hanking steps in nickel market by in consideration of RMB 311 million. The company acquired Northeastern Lion which possesses 75% of interest for three nickel mines in Indonesia covering 3.75 million (nickel content) mt of controlled and proven nickel ore resources. It also plans to fi nish constructing a 40,000 mt/yr nickel smelters by the end of 2016.

NSSMC announced December 26 that it has reached an agreement with Indonesia’s PT Krakatau Steel (Persero) Tbk (PTKS) to establish JV factory in Indonesia mainly devoting to production and sales of flat products used in automobile.

Outokumpu and Inoxum should start operation as a whole company on January 1. The new company’s structure will be differ from expectation as the 1.7 million mt/yr capacity of Acciai Speciali Terni will be stripped of in six months by the EU committee as a condition for the merger. The new Outokumpu owns 4 million mt/yr in crude stainless capacity, including the 900,000 mt/yr capacity of Calvert in the US, and 850,000 mt/yr in special stainless steel capacity in the UK and Sweden. The total capacity of Outokumpu exceeds that of China’s Taiyuan I/S and of South Korea’s Pohang I/S.

Europe’s Alloy Surcharge Down Over USD 147 in December

Hanking Steps in Nickel Market

NSSMC to Establish JV Factory in Indonesia

PPS to Expand Nonferrous Metals Reserve

Koniambo Nickel Project to Come Online in January

Jinguang Group’s Nickel Alloy Project to Start Trial Production in 1H

New Outokumpu Starts Production on January 1

This report is an original work and/or a compilation by SMM, which holds the copyright thereto and is entitled to copyright protection under the Copyright Law of the People’s Republic of China and applicable international treaties. Without the prior written permission of SMM, neither this report nor its contents, in part or in whole, may be reproduced, revised, sold, transferred, displayed, translated, compiled, or otherwise disseminated.

The contents of this report, including, but not limited to, any and all information, articles, data, tables, charts, photographs, audio and/or video recordings, logos, advertisements, trademarks, trade names, domain names, layout designs, are subject to protection under China’s Copyright, Trademark, and Unfair Competition laws, as well as applicable international treaties pertaining to the legal protection of copyrights, trademarks, domain names, commercial data, and other forms of intellectual property, and are owned and held by SMM, its rights and assigns. Without the prior written permission of SMM, neither this report nor its contents, in part or in whole, may be reproduced, revised, sold, transferred, displayed, translated, compiled, or otherwise disseminated.

The views expressed in this report are based on a comprehensive assessment of available market information by SMM Research as of the date of publication. This report is provided for reference only. Reliance on the contents hereof is as your own risk.

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