By (Reuters)
Updated: 2007-07-09 17:15

The four mills, also including Lianzhong Stainless Steel Corp. in Guangdong Province, never clarified whether the cuts would be calculated based on the previous month's production or on their originally planned output for July.

China is the world's largest stainless steel producer with more than 5 million tonnes of output in 2006.

Company officials said that, while they did not expect a big drop in China's nickel consumption this month, the trend among Chinese mills to produce more low-nickel products would undermine international nickel prices in the medium term.

Chinese mills are increasing production of chromium-based stainless steel to avoid using expensive nickel , which hit an all-time high at $51,800 a tonne in early May.

"Output of the traditional 300 series of austenitic stainless steel will only account for 45 percent of the country's total stainless steel production in 2007," said Hao Peigang, a senior economist at Taigang.

"Compared with the output cut in July, the long-term reduction in consumption is the key factor undermining nickel prices," he said.

Taigang has said it would augment production of 400 series, or ferritic, stainless steel -- which contains less than 1 percent nickel -- to more than 50 percent of total stainless steel output, while Baosteel has said it would raise the proportion of low-nickel products to as much as 40 percent.

China's top economic planning agency, the National Development and Reform Commission, has said more than 20 percent of China's stainless steel output in 2006 was of the low-nickel variety.

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