Chinese nickel firms in Indonesia mull output cuts on low prices
One proposal is for each company to cut production by about 30%, sources say
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[JAKARTA] Several Indonesian nickel smelters controlled by Chinese companies are weighing coordinated output cuts of a key battery material, as pressure mounts on profitability due to weak prices, said sources.
Senior executives with companies including Tsingshan, Gem, Lygend Resources & Technology and Zhejiang Huayou Cobalt have met in the past week to discuss lowering operating rates at their high-pressure acid leaching (HPAL) plants in the country, said the sources, who are not authorised to speak publicly.
Reducing output of mixed hydroxide precipitate (MHP), which contains nickel and cobalt produced through the HPAL process, is viewed as a possible response to challenging conditions in Indonesia, the sources added.
One proposal is for each company to cut production by about 30 per cent. However, no agreement has been reached yet, as some participants in the meetings flagged a coordinated cut is difficult to execute.
The four companies did not immediately respond to queries.
Chinese companies have brought both investment and know-how to Indonesia’s nickel industry, helping to propel a rapid expansion over the past decade that has allowed the country to capture more of the profits from its vast trove of natural resources.
But the sector has faced increasing uncertainty this year. The government has hiked nickel ore prices to generate more revenue, which has squeezed margins.
The war in the Middle East has raised the cost of sulphur, a key element in the HPAL process. Jakarta’s policies on mining quotas and commodities exports have also affected business.
MHP is priced against benchmarks for nickel and cobalt. The market for refined nickel dropped sharply in June, while cobalt retreated in recent weeks, as flows re-emerged after the Democratic Republic of Congo relaxed export restrictions.
In April, Huayou already unveiled a production cut of about 50 per cent at a major Indonesian nickel plant in Weda Bay, citing a spike in sulphur costs. BLOOMBERG
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