China's nickel smelters agree to 20% production cut for 2016

[SHANGHAI] Nickel smelters in China, the largest producer, plan to cut output next year by at least 20 per cent in a bid to shore up prices after the metal plunged to its lowest in 12 years.

Eight producers, including the largest refined metal supplier Jinchuan Group Co and nickel pig iron maker Tsingshan Holding Group Co, also agreed to cut output next month by 15,000 metric tons, according to a statement circulated by the group on Wechat.

The smelters didn't say how much of China's total supply the 20 per cent reduction would account for, but their statement suggests cuts of about 120,000 tons next year, according to Celia Wang, general manager at Tianjin Zhongwei Group Co's investment department. The eight producers account for all of China's nickel capacity, she said.

Nickel prices in London pared losses on the news, and at 6.22 pm in Shanghai were down 2.3 per cent to US$8,980 a ton, after earlier sliding as much as 3.3%.

"The plan may provide support to prices in the short-term period," Peter Peng, a Beijing-based CRU analyst, said by phone. "Whether it can fuel the market for a longer period depends on the implementation." Nickel, used to produce stainless steel, is this year's worst performer on the London Metal Exchange as slowing growth in China spurs a supply glut, sending prices to their lowest since 2003. The slump is so severe that at least half of global production is now loss-making, according to PT Vale Indonesia, a unit of Brazil's Vale SA.

China, the world's biggest producer and consumer of metals, has presided over a capacity expansion in the past decade to satisfy demand from an infrastructure and property boom. Now, faced with the slowest economic growth in a quarter century, it's contending with supply gluts that have driven prices to multi-year lows. The London Metal Exchange's index of six industrial metals is heading for its biggest annual decline since the global financial crisis.

Nickel prices have rallied almost 3 per cent this week as China's metals industry stepped up measures to protect their interests and ahead of the smelters' gathering in Shanghai. Refined nickel producers Jilin Ji En Nickel Industry Co and Xinjiang Xinxin Mining Industry Co also attended the meeting.

Chinese nickel production, including the refined metal and nickel pig iron, a cheaper alternative, was expected to fall 21 per cent to 585,000 tons this year from 741,000 tons in 2014, according to researcher CRU. Global output was seen falling to 1.94 million tons from 2 million tons, CRU data shows.

China's zinc producers also met last week and agreed to cut production next year. However, that produced a rally in prices that quickly unraveled.

"Investors have concerns that such support is short-lived, just like the one-day surge in zinc after last week's similar announcement, and may question whether such agreements are binding on smelters," said Xu Maili, a Shanghai-based analyst at Everbright Futures Co.

Copper smelters including Jiangxi Copper Co. and Tongling Nonferrous Metals Group Co, the biggest in the country, plan to gather on Saturday in Shanghai to discuss their response to prices at six-year lows, according to people with knowledge of the event.

They'll exchange views on the market, update each other on fee negotiations with global miners, and discuss countermeasures to the price collapse, according to the people, who asked not to be identified because the gathering is private. It's not certain that the copper smelters will take similar action on production cuts.

BLOOMBERG