China produced 30,003 tons of tungsten concentrate in the first five months of 2008, down 4.01 percent from the same period last year, according to statistics compiled by the China Nonferrous Metals Industry Association (CNMIA), though an industry insider told Interfax that in July and August tungsten concentrate prices will not be buoyed by decreased production.

The decline was attributed to government restrictions on illegal mining and excessive exploration, as well as devastating snowstorms that battered much of the country in January and February.

In addition, the CNMIA that June's tungsten concentrate production in the provinces of Jiangxi, Hunan, Guangxi, Fujian and Guangdong fell significantly due to rainstorms over the period. Production will be further curtailed by stricter controls of illegal mining and excessive exploration in the run up to the Beijing Olympic Games in August.

However, reduced production will not support tungsten concentrate prices in July and August, as market demand for tungsten concentrate will weaken when downstream enterprises such as filament producers and drill producers enter the traditional equipment maintenance period over the two month period, Qiu Wanyi, secretary general of Ganzhou Tungsten Industry Association, a union of tungsten concentrate producers in Jiangxi Province, told Interfax.

"Current high market stockpiles also affects prices of tungsten concentrate. In July and August, prices of tungsten concentrate will stay around RMB 87,000 ($12,700.73) per ton," Qiu said.

The price of tungsten concentrate in the city of Ganzhou, Jiangxi Province, a major tungsten concentrate producing region, was at RMB 88,000 ($12,846.72) per ton on July 8.

In May, China's tungsten concentrate production totaled 7,546 tons, equal to that of the previous month.

Jiangxi Province, the country's largest tungsten producing region, saw tungsten concentrate output fall 16.08 percent year-on-year to 13,000 tons for the first five months of the year.

Hunan Province, China's second-largest tungsten producing region, produced 10,038 tons of tungsten concentrate during the same period, down 11.62 percent year-on-year.

Interfax commentary: Sluggish demand from stainless steel consumers have persuaded stainless steel manufacturers to either suspend production or to cut prices, but neither course of action has done much to reverse the situation. The slack demand experienced by steelmakers has now been passed on by a lack of demand for raw materials. As a result, spot nickel prices on the London Metal Exchange have fallen from $30,000 per ton in April to the current $20,600 per ton level.

Jinchuan's move in cutting its ex-works prices is unlikely to do much to boost nickel consumption. Counter-intuitively, the move may result in further downtrend, due to the pessimistic sentiment that is likely to follow the lack of confidence from such a major nickel producer. It is now predicted LME spot nickel prices will continue to sink to find support at $18,000 in coming months.

Some nickel pig iron producers in China have already suspended part of their production, or shifted production to other metals in the hunt for profits. Interfax anticipates that producers of nickel pig iron that consume large amounts of energy and produce environmentally damaging emissions will be phased out through nickel price corrections, and those that remain will demonstrate larger economies of scale and advanced technologies.