Nickel is one of the most sought after metals in the industrial world for its use in magnets, coins, rechargeable batteries, and most importantly, stainless steel. In fact, roughly two-thirds of global nickel production goes to make stainless steel, and China produces and consumes the majority. But China has a secret that has helped it keep costs of producing stainless steel incredibly low, allowing the country to ramp up production and dominate the global market in recent years. What is this secret you ask? Nickel pig iron.
Nickel pig iron was developed in China specifically for stainless steel production. It is made from low-grade nickel laterite ores, which make up the majority of nickel resources in the world (about two-thirds), but until recently have been much more difficult to process than the more commonly mined nickel sulfide.
Most companies have struggled to make nickel laterite profitable due to highly complex and expensive processing. For example, in 2009, BHP-Billiton abandoned its Ravensthorpe Nickel Project in Australia. The company lost hundreds of millions of dollars in invested capital due to the project’s reduced profitability linked to processing lateritic ore.
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Leave it to the Chinese to figure out how to make nickel laterite profitable. The unique process combines low-grade nickel laterite ore with coking coal, and a mixture of gravel and sand aggregate. The combination of materials is then introduced to a blast or electric arc furnace (depending on the desired grade of ore). The mixture goes through a series of sintering and smelting processes that remove impurities such as phosphorus, sulfur and silicon. The result is nickel pig iron containing between four and 13 percent pure nickel. Standard nickel laterite ores contain only between one and two percent nickel.
Nickel Pig Iron can then be used as a substitute for refined nickel in making stainless steel, and considering that’s where the majority of nickel goes anyway, China has finally found a way to make low-grade nickel ores profitable.
Citigroup Inc. has analyzed the nickel market and notices a major shift taking place in favor of pig iron in China. Investors may be “wondering why nickel traded up to $29,000 a ton in the first quarter (2011) when the Chinese can produce as much nickel pig iron as they wish at a cost of $22,000 a ton,” says Jon Bergtheil, head of commodity research at Citigroup.
China’s second largest stainless steel maker, Baoshan Iron & Steel Co., says it plans to cut refined nickel use for the first time in three years to lower the cost of raw materials. The company plans to substitute nickel laterite instead. “It’s an industry-wide trend to turn to lower-grade ores,” says Dai Xiangquan, assistant general manager at Baoshan’s stainless steel unit in Shanghai.
According to Australia and New Zealand Banking Group Ltd., “The Chinese have converted a large number of small steel plants into nickel pig iron facilities in the past three to four years.”
Analysts estimate that pig iron output in China could grow by 50 percent by the end of 2011. Forecasts predict production of pig iron to jump to 240,000 metric tons in 2011, compared to 160,000 tons in 2010.
China’s innovation in processing low-grade nickel ore has solidified the country as the world leader in both nickel laterite consumption and stainless steel production. China may have single handedly opened up the market on low-grade nickel ores. Once too expensive to mine, processing nickel laterite into useful nickel pig iron will allow the stainless steel industry to operate without refined nickel. This is positive on all counts. Whereas two-thirds of the world’s refined nickel has traditionally gone to stainless steel production, the pig iron substitute will allow refined nickel to be redirected to more important uses. For example, with the electric vehicle (EV) industry taking off, refined nickel will be in high demand for use in EV batteries. Nickel pig iron may have arrived on the scene just in time to address the changing face of the nickel market.