China's nickel producers said on Friday they plan to slash output of refined metal and nickel pig iron (NPI), the first major coordinated move in the industry globally to lift prices out of their worst slump in more than a decade.
In an open letter, eight producers, including state-owned Jinchuan Group Co Ltd, said they will cut production by 15,000 tonnes of metal next month and reduce their output next year by at least 20 percent from this year.
Chinese smelters have been hit hard by the rout in global nickel prices as a crisis in the country's steel industry has deepened.
"Nickel prices have already seriously deviated from the market fundamentals and the whole industrial chain has fallen into a vicious circle," they said in the letter. The producers also promised to refrain from engaging in price wars with rivals.
The announcement followed a meeting by producers on Friday afternoon in Shanghai to discuss coordinated output cuts after prices on the London Metal Exchange plunged to their lowest in more than 10 years this week amid concerns over a global glut and falling demand.
Xu Aidong, senior analyst at state-backed research firm Antaike, who attended the meeting, said the eight producers could expand production cuts next year if domestic prices stayed below 70,000 yuan a tonne.
The most active nickel contract in Shanghai traded at 69,090 yuan on Friday.
She said the eight producers' output in 2015 would be about 400,000 tonnes of nickel, meaning that the cuts would amount to around 80,000 tonnes in 2016, she added.
"The cuts should at least stabilise the prices," Xu told Reuters.
The move is the first major coordinated output cut by the global nickel sector aimed at eroding oversupply and offsetting weak demand.
Ahead of the meeting, sources had said the refined metal and NPI producers would agree to slash output by as much as 100,000 tonnes, about 5 percent of global output.
China is expected to produce about 600,000 tonnes of nickel from refined metal producers and NPI producers this year, according to an estimate by Antaike. Global output is estimated at 1.954 million tonnes, according to the International Nickel Study Group.
London Metal Exchange prices have more than halved over the past year, hitting $8,145 per tonne on Monday - their lowest in more than a decade as steel demand stalls and the world's second-largest economy slows.
China's top zinc smelters also plan to slash output, by 500,000 tonnes, they said last week, but fell short of outlining details on when or who would implement the cuts.
"The (nickel) supply cuts are good news definitely but we need to see stronger data on the demand side before we have a sustainable recovery," said Caroline Bain, commodities analyst at Capital Economics in London.
"But those cuts are significant and it really does tighten the market next year. We already had a deficit of 25,000 tonnes pencilled in for next year this just adds to it."