Power shortage in Inner Mongolia to have ‘limited impact’ on Chinese NPI production, market participants say

Any impact to Chinese nickel pig iron (NPI) production from an expected power shortage in Inner Mongolia during April and May is likely to be limited, according to market participants.

The city of Ulanqab in China’s autonomous region of Inner Mongolia is expected to experience a severe power shortage in April and May, market sources told Fastmarkets, citing an unconfirmed announcement issued by city authorities last week.

While no specific details surrounding what measures Ulanqab authorities will implement during the power shortage have been released, one measure that participants believe will be enforced is a restriction on power usage.

Yet despite Ulanqab being one of China’s major production hubs for ferro-alloys, market participants were largely of the opinion that any disruption to ferro-alloy output as a result of these potential power restrictions would be minimal.

Participants in China’s NPI market shared similar sentiments, saying that any affected output would be marginal on a national level and new NPI projects in the country would more than make up for any lost tonnages.

“Affected NPI output during the power shortage would be around 600-700 tonnes of contained nickel, equating to 1.6% of total Chinese NPI production on a monthly basis, given monthly Chinese NPI output is 39,000 tonnes of contained nickel,” a Shanghai-based analyst told Fastmarkets.

“China’s NPI production from Inner Mongolia only makes up around 10% of the nation’s total output, and the announcement mainly targets areas within Ulanqab in Inner Mongolia, so the affected proportion will be even less on a nationwide scale,” an NPI producer based in Inner Mongolia said.

“Inner Mongolia is a known ferro-alloys production hub and it’s common to see electricity restrictions targeting such industries when electricity usage is at a peak in certain regions,” the producer added.

Moreover, new NPI projects coming on stream in China during April and May are also expected to offset any shortfall in production resulting from the power restrictions in Ulanqab as well as alleviate the existing tightness that the country’s domestic market is experiencing.

Xinhai Technology, China’s largest NPI producer, last year announced the addition of eight rotary kiln-electric furnace (RKEF) lines with nameplate capacity for 120,000 tonnes per year of nickel contained in NPI. Two of these new lines are expected to start up during the second quarter of this year.

“Xinhai Technology’s third new RKEF line came on stream during the Chinese New Year holiday (February 4-10), but it hasn’t resolved the tightness in market – maybe in April or May when another two lines of theirs come into operation will the current tightness ease,” an NPI buyer source said.

“Xinhai’s fourth new line will produce around 630 tonnes of nickel contained in NPI per month, which will offset any affect output in Inner Mongolia [due to the power restrictions], while the fifth new RKEF line should ease the existing tightness in the market,” the analyst said.

Fastmarkets assessed the NPI spot price, China on delivery, at 1,030-1,050 yuan ($154-157) per nickel unit on Tuesday February 26, up by 80 yuan per nickel unit from 950-970 yuan per nickel unit two weeks ago amid tightened supply of the material.

Similarly, the price of laterite ore – NPI’s key raw material – also gained upward momentum following the gains in NPI prices.

Fastmarkets’ price assessment for nickel ore, basis 1.8%, cif China, rose by $2 per tonne over the past two weeks to $50-52 per tonne on February 26.

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