SHANGHAI (Interfax-China) -- Shanghai Baosteel Stainless Steel Co. Ltd., a Shanghai Baosteel Co. Ltd. subsidiary, will increase ferritic stainless steel production to more than 50% of the company's total stainless steel output this year in an attempt to stabilize sales revenues, a company official told Interfax today.
"We have already increased ferritic stainless steel production to more than 50% of the company's total stainless steel production for the first half of this year in an effort to stabilize our sales revenue. Moreover, ferritic stainless steel production for the whole of this year has been set to between 50% and 55% of total stainless steel production," a Baosteel Stainless news department official, surnamed Wang, said.
Falling nickel prices have led to a subsequent plunge in stainless steel product prices, with major stainless steel mills such as Baosteel and Taiyuan Iron and Steel (Group) Co. Ltd. (TISCO) slashing the price of 304-series stainless steel products by RMB 8,000 ($568.03) per tonne as of July 1.
"On the other hand, ferritic stainless steel prices are comparatively stable, as this type of stainless steel does not contain nickel metal," he explained.
Baosteel Stainless developed and produced 21 new types of stainless steel product in the first half this year, totaling 30,000 tonnes, 40% of which were ferric products.
Baosteel Stainless has a production capacity of 100,000 tonnes of stainless steel and 200,000 tonnes of carbon steel per month, according to Wang.
The company has reduced stainless steel production by at least 20% since the start of July due to falling nickel and stainless steel prices.
Conversely, during the surge in nickel prices in the first five months this year, the company successfully cut production costs by RMB 43 million ($5.68 million) through the utilization of low-grade nickel pig iron.
Baosteel Stainless consumed 36,000 tonnes of nickel pig iron during stainless steel production in the first five months, reducing melting costs by RMB 68 ($8.98) per tonne, Wang said.
The company has long-term contracts with nickel pig iron producers and supplies them with imported laterite ore for processing into nickel pig iron, according to Wang.
However, Baosteel Stainless ceased nickel pig iron purchases in July due to a dramatic fall in nickel prices, causing nickel pig iron-produced stainless steel to become unprofitable.
"We have now returned to relying on refined nickel stockpiles, due to concern that nickel prices will fall further and impact stockpile value," Wang explained.
Commentary
It is quite clear that lower nickel prices will reduce production costs, as will the use of alternatives. Yet this is not the overriding force behind falling domestic stainless steel prices.
The trend had been set months ago as new capacity came on stream resulting in production levels which far exceeded domestic demand. This does of course give exporters the advantage of maintaining profit margins even as export taxes are levied.
(c) Interfax-China 2007.
This article comes from Interfax China Commodities Daily, a daily digest produced by Interfax News Agency in Mainland China. To receive 10 free copies of this, please e-mail david.harman@interfax-news.com.
