Indonesia nickel hub to cut production on El Niño-driven drought
Smelters at a major Indonesian nickel-processing hub will be forced to cut output as an El Niño-driven drought reduces the supply of water used to cool and protect equipment, according to people familiar with the matter.
Indonesia Morowali Industrial Park, a vast compound of plants on the island of Sulawesi, informed companies over the weekend that they have to reduce production of nickel pig iron – a raw material used to make stainless steel – due to the water shortage, said the people, asking not to be named as they’re not authorized to speak to media.
The volumes affected by the cut could be around 100 000 tons of NPI production, some of the people said. That compares with installed annual capacity of about 4.2-million tons, or 350 000 tons a month, based on an estimate from Wood Mackenzie. The reduction could help arrest a slide in nickel prices, which have declined around 18% on the London Metal Exchange from a high in early May.
Indonesia is the world’s biggest producer of nickel, also used in electric vehicle batteries, accounting for more than half of global output, much of which is processed at industrial parks like Morowali. IMIP, majority owned by Chinese nickel giant Tsingshan Holding Group and also hosting many tenant firms, warned earlier this month that production could be cut by 30% to 40% if the water situation didn’t improve.
An IMIP representative and Tsingshan officials didn’t immediately respond to requests for comment.
Morowali’s problems show how the strengthening El Niño weather pattern is rippling through the global economy. Indonesia is already battling forest fires and choking haze, which has spread to other parts of Southeast Asia, due to the unusually dry weather that the weather pattern brings to the country.