(Bloomberg) -- Indonesia’s sprawling nickel industry is creaking under the weight of its own success, as a production surge drags down prices and a shortage of ore forces even the country’s own smelters to curb output.
Most Read from Bloomberg
-
Cuts to Section 8 Housing Assistance Loom Amid HUD Uncertainty
-
NYC Office Buildings See Resurgence as Investors Pile Into Bonds
-
Hong Kong Joins Global Stadium Race With New $4 Billion Sports Park
The Southeast Asian nation’s metal boom over the past decade has convulsed the industry, catching many off-guard with its speed and scale. Cheap coal-based power and Chinese technology that makes the most of bountiful low-grade reserves have helped Indonesia to control more than half of the world’s nickel production — a win for Jakarta governments eager to boost manufacturing.
The surge prompted a two-year price plunge that has crippled global rivals. With the metal now languishing near its lowest levels since 2020, the effects are now being felt at home, too. Weaker-than-expected demand from key markets like China and ore shortages are adding to the pain in the country’s smelting sector.
“Previously everyone was getting two-year paybacks on their smelting investments,” said Jim Lennon, a veteran metals analyst at Macquarie Group Ltd. “There’s no money in the industry for them now.”
PT Gunbuster Nickel Industry — one of Indonesia’s largest smelters with more than 20 production lines for nickel pig iron, a precursor for stainless steel — has delayed payments to suppliers and is close to shutting down completely amid the collapse of its Chinese parent Jiangsu Delong Nickel Industry Co., Bloomberg reported last month. Gunbuster said in a statement last week that its operations continue to run as normal during “changes in operational management.” It did not elaborate.
In Java, Indonesia’s most populous island, several smaller smelters have cut production to minimal levels or stopped altogether, according to a person familiar with the matter. The plants, hundreds of miles from the nickel mining heartland of Sulawesi, face additional costs to ship in ore.
But even facilities near mines are facing difficulties, including those in the massive purpose-built industrial parks run by China’s Tsingshan Holding Group Co., the world’s largest nickel producer. Australian-listed Nickel Industries Ltd, with several smelters in the conglomerate’s parks, posted a full-year loss after taking a $205 million post-tax impairment.