Asian Metal: Hello, Mr. Li, thank you very much for participating in this interview with Asian Metal. Firstly, could you please give us a brief introduction to China Stainless Steel Association/China Stainless Steel Institute of CMMDA? And could you please outline the basic state and development direction of this association?

Li: Firstly, China Stainless Steel Association/China Stainless Steel Institute of CMMDA is right now applying to join the China Stainless Steel Association. The crude steel production capacity of its members makes up more than 60% of the total production capacity in China, while the stainless steel processing capacity of its members accounts for more than 80% of the overall processing capacity in China. The association aims to serve its members, providing industry news and industry development proposals, as well as targeted recommendations for enterprises’ development.

The development directions of the association are as follows: firstly, the association will continue to attract more members and enhance its position in the global market; secondly, the association will strengthen international exchanges. We invited 13 Indonesian delegates to participate in the China Stainless Steel Conference 2015, including the assistant minister at the Coordinating Ministry for Economic Affairs, the president as well as the vice president of the Indonesian Chamber of Commerce and Industry. Meanwhile, we also accepted an exclusive interview from Japanese Industry and Policy News. We will actively take part in international exchanges, and try to create an association which reflects the demands of the Chinese stainless steel industry, shows the outlook of the industry, and serves as a communication platform for Chinese stainless steel enterprises and international stainless steel enterprises.

Our services cover the entire stainless steel industry chain: first of all, the stainless steel smelters, processors, traders, retailers, etc; second, the upstream and downstream industries. The upstream industries which serve as raw material providers include those in the nickel industry, such as the producers and traders of ferronickel and nickel cathodes, as well as nickel miners; the chromium industry, such as the smelters and traders of ferrochromium; and the manganese industry, such as the producers and traders of manganese cathodes and silicomanganese. The downstream industries include the traders and retailers of stainless steel products, stainless steel industrial parks, trading centers and other financing and investment institutions related to stainless steel. Our association provides services to customers across the entire stainless steel industry chain.

Asian Metal: The nickel price has continued to decline this year, hitting its lowest level since the financial crisis in 2008. The operating rates of domestic electrolytic nickel, ferronickel and stainless steel plants have decreased remarkably compared with last year. In your opinion, what are the major causes of the price slump? And what do you think about the market situation?

Li: Firstly, I want to give a brief introduction to the stainless steel market this year. Demand for stainless steel has increased this year, albeit with a slower growth rate, while the output of stainless steel has also risen, but its growth rate slows down as well. The supply growth exceeds the growth in demand, seemingly causing an oversupply, whereas in fact the market isn’t oversupplied as the stocks in various segments of the whole industrial chain are low this year. The price drop witnessed by stainless steel was mainly caused by the nickel price decline. There are several reasons for the nickel price slump. First of all, financial hype triggers a war among investors, and those who held a short position made money finally. Second, the market supply has exceede demand, which is used by investors who have a short position to push down the price. After all, the remaining 430,000t of LME nickel stocks continues to crush market confidence. Third, China’s economic growth is slowing down and growth in demand for stainless steel has also decelerated, which signals that the market demand isn’t strong. Finally, it was the over-pessimism expressed by the media that contributed to the price decline.

In my view, this round of price declines can be used by the stainless steel industry as a chance to expand its business scope. Stainless steel can be applied in many more fields due to its low price, for example, stainless steel can gradually replace wood or other materials being used in parks, roads and residential fences. Therefore, the price drop can help the stainless steel industry to grow bigger and extend the scope of stainless steel’s utilisation. Judging from the current market situation, I think there is limited room for the stainless steel price to fall further and the price of the material may pick up slowly with the nickel price increase. At the same time, the stainless steel market is unlikely to see a rally in prices in the future and the industry may extend the share and scope of its business with the price of the material staying at a low level.

Asian Metal：We’ve learnt that the output of nickel cathodes and ferronickel in China has been on the decrease since July, while the prices for the two materials have also witnessed a continuing decline. Do you think these are signs that domestic demand is weakening? How do you see the current supply and demand situation in these two markets? What changes do you expect to see?

Li: No, I don’t think domestic demand is shrinking and the major cause of the decline is that the supply growth exceeds the growth in demand. The market demand for stainless steel in China was 2.52 million tonnes last year and will increase to 4.48 million tonnes in 2020, according to the estimations of China Stainless Steel Association. However, I expect demand to rise to 5 million tonnes in 2020. The market demand won’t decrease, in fact it will increase by nearly two times compared with 2014.

The market supply of ferronickel and nickel cathodes continues to dip because the market prices of the two materials are below their production costs and there has also been a reduction in nickel ore supply. Firstly, producers had to reduce production because of losses, resulting in a continuous drop in output. It is predicted the output of ferronickel and nickel cathodes will keep deceasing. The average cost of nickel is USD15,000/t, but producers can’t make a profit at the current market prices, so their operating rate is bound to decrease further. Domestic ferronickel supply will witness a further reduction as more and more ferronickel plants with small furnaces and outdated production lines are shut down. I expect the ferronickel output to be only 7 million tonnes or so this year. In addition, the nickel ore supply will decrease significantly with a decline in the nickel grade at the same time. Producers only purchased high-grade nickel ores before 2012, but now, as the nickel content in nickel ores imported from Philippines declines, the mid and low grade nickel ores have become the major products available on the market.

Asian Metal:At present, the stainless steel market is weak and most of the large stainless steel plants have halted or reduced production. What is your thoughts on the current stainless steel market? Do you think the soft stainless steel market will result in nickel prices dropping further?

Li: The supply growth for stainless steel is greater than its demand growth, resulting in decreasing prices for the material. In order to adjust the supply-and-demand relationship, stainless steel plants have reduced or halted production. But, recently, Tshingshan Stainless Steel Company has increased its purchase volume of raw materials, which may mean that the inventory reductions in the stainless steel market have achieved some good results with stainless steel plants starting to resume productivity to some extent.

In my opinion, the stainless steel market is still limited by the nickel price at present and the weak stainless steel market is unlikely to pull the nickel price down directly. This year, the nickel price has reduced to USD9,100/t, probably the bottom price. Nickel prices won’t have room to drop further unless China’s investment and macro-economic growth slows down. Although the nickel price will be helpful in improving the market conditions in the future, it will be inelastic.

Asian Metal:The operating rate for Chinese low-grade ferronickel was generally low before September. But smelters have intensively resumed production since early October. Will stainless steel plants increase the demand for low-grade ferronickel?

Li: So far this year, low-grade ferronickel output has reduced sharply, which to some extent has improved the supply-and-demand relationship. Although operating rates and supply of low-grade ferronickel are increasing at present, the nickel content of 200 series stainless steel has slightly increased to 2-4% so far this year and some of the 200 series stainless steel without nickel content has been replaced. In other words, 200 series stainless steel’s demand for low-grade ferronickel has increased.

Asian Metal:Environmental protection inspections in China are becoming ever more strict. What do you think the impact will be on the stainless steel and nickel markets?

Li: I think the impact will be limited. Environmental protection should be a gradual process rather than a quick result. The unsuitable actions will be corrected by the future environmental protection policies. Besides, because the Chinese stainless steel industry started relatively late with new equipment and advanced environmental protection facilities, the environmental protection has achieved some good results. Thus, the progress of China’s environmental protection won’t have a big influence on its stainless steel and nickel markets.

Asian Metal:So far this year, more and more Indonesian ferronickel has been exported to China. Will the growth in imports of Indonesian ferronickel have a negative effect on the domestic market? When will Indonesian ferronickel to some extent supplement the demand from Chinese stainless steel plants? And is it possible it may cause an imbalance in the supply-and-demand relationship and thus impact the nickel price trend?

Li: Only when the nickel price recovers to more than USD20,000/t will Indonesian ferronickel projects be able to make a profit. However, the nickel price is unlikely to increase substantially at present. As a result, the construction or production schedules of Indonesian ferronickel projects will slow down. Greatly affected by the incomplete electricity, road, infrastructure and other comprehensive support facilities, the production cost of Indonesian ferronickel is very high. Indonesian ferronickel won’t have a big impact on Chinese ferronickel in 2016. As long as the nickel price continues to see a slow increase, Indonesian ferronickel output won’t improve sharply. As for the recent growth in imports, it was mainly caused by production commencing at Tsingshan Group’s Indonesian plant.

Asian Metal:Chinese imports of nickel ore from the Philippines have increased since last year, while according to the calculations on Chinese nickel consumption, nickel ore supply is still insufficient. However, transactions and investment in the Chinese nickel ore market are currently subdued. What do you think about this situation? Will the supply of nickel ore from the Philippines be sufficient to meet the demand from Chinese ferronickel plants and when will the apparent shortage manifest itself?

Li: It is extremely difficult to seethe nickel ore supply from the Philippines satisfying demand in the Chinese market. The reserves of nickel ore in the Philippines stand at 750,000 metal tons and the annual exploitation volume is 40 million tonnes, including at most 20% of lateritic nickel ore 1.8%min through selective mining, far lower than the demand from Chinese nickel smelting. Chinese stainless steel plants will have to increase their usage of nickel cathodes due to the reduced nickel content in domestic ferronickel and from this we can see the shortage of nickel ore from the Philippines.

Asian Metal:To some degree, nickel prices increased in the middle of October, but the price has been fluctuating within a narrow range recently. Would you please tell us your opinion on the situation?

Li: The price increase in October was stimulated by the market expectation of Chinese investment growth. And the shaky and slow rebound will continue in the future.

Asian Metal:In your opinion, in what price range will nickel balance the interests of all parties in both the upstream and downstream markets? Will China introduce some relevant policies to stimulate development of the economy, as well as the non-ferrous market in the near future? Would you please share with us your expectations regarding the nickel and stainless steel markets in the coming months?

Li: Once above the industry average cost of USD15,000/t, the nickel price will be capable of balancing the interests of all parties in both the upstream and downstream markets. The industry average cost is calculated based on the reports from nickel cathode and ferronickel projects, as well as listed companies both at home and abroad, and other data. It is expected that China will continue to formulate some relevant policies to promote its economic development. Since September, China has carried out a lot of incentive measures, such as the reduction in mortgage down-payments, reductionsin taxes and fees in purchasing cars before the National Day; the expansion of credit asset pledged relending on 10 October; the approval of projects worth RMB1.8 trillion by NDRC in Jan-Sep, and so on. More and more incentive measures will be carried out to boost economic development.

As for the outlook within the stainless steel market, I think the nickel market will see a shaky and slow recovery in the future and the stainless steel market will follow suit. The nickel industry has experienced an adjustment over the past two years and the situation will improve before or after the next Spring Festival. The adjustments within the stainless steel market have just started. It will probably give the appearance of a counter cycle this year. November used to be a low-level period; however, because further stimulation of the Chinese economy only started in September this year, prices for the material will possibly stand at a high level in the middle of November 2015. And then the price increases will slow down, affected by the Christmas holiday.

The market will continue its shaky and slow rebound, instead of the sharp fluctuations seen earlier this year before the implementation of a series of new policies formulated by the Chinese government.

In conclusion, as time goes on, the stainless steel industry will expand. The nickel price is not high enough to support a resumption or expansion of production by nickel ore producers, traders, ferronickel plants, nickel cathode enterprises and others at present. Even though demand is increasing, supply won’t improve. And only when the nickel price recovers definitively, will producer confidence in the nickel industry be restored sufficiently to resume production.

Asian Metal: Thank you very much for sharing your opinions with us about the market.