Indonesia's Delong Phase III Nickel Smelter Crisis

Recently, a piece of news regarding Indonesia's nickel smelting industry has attracted widespread attention: PT Gunbuster Nickel Industry (also known as Giant Shield Nickel Industry, or what we commonly refer to as Indonesia's Delong Phase III), one of Indonesia's largest nickel smelters, is on the verge of shutdown, with its production and operation situation hanging in the balance.

This smelter, located in the SEI Industrial Park of North Morowali Regency, Central Sulawesi Province, originally had quite considerable production capacity, with the ability to produce 1.8 million tons of nickel pig iron annually. However, since the beginning of this year, most of its over 20 production lines have been reluctantly shut down, leaving only a few barely operational, resulting in a significant reduction in output.

Looking into the root causes, the primary factor lies in the bankruptcy of its parent company, Jiangsu Delong Nickel Industry Co., Ltd. As one of the earliest Chinese enterprises to engage in Indonesia's nickel smelting industry, Jiangsu Delong Nickel Industry once held considerable influence in the industry and was controlled by the Dai Guofang family. In recent years, however, affected by the slowdown of China's economic growth and increasingly fierce industry competition (especially the strong competition from Tsingshan Holding Group), Jiangsu Delong Nickel Industry's business has been declining continuously. Eventually, it was ruled by a Chinese court to undergo restructuring last year. This change immediately left PT Gunbuster Nickel Industry without the financial and resource support from its parent company, falling into an isolated and helpless situation. It not only found it difficult to raise funds for purchasing nickel ore but also was unable to pay the local energy suppliers on time, facing huge obstacles in production.

The global nickel price trend has also dealt a heavy blow to the smelter. Since the end of 2022, the global nickel price has nearly halved. Indonesia's own nickel production has surged, with its share in global nickel supply rising steadily, reaching 54% in 2023 and is expected to further increase to 60% by 2028. The massive influx of nickel into the market has caused many mines and smelters around the world to be overwhelmed and forced to close down. Even though local Indonesian smelters should have had an advantage due to lower energy and labor costs, PT Gunbuster Nickel Industry still failed to escape and is facing severe operational pressure in such a fierce market environment.

Looking at Indonesia's domestic policies, the government has not issued new mining quotas in the past year, leading to a continuous shortage of domestic nickel ore supply. For PT Gunbuster Nickel Industry, which is extremely dependent on nickel ore raw materials, the insufficient supply of raw materials is like a stranglehold on production, further exacerbating the risk of shutdown.

Looking back, in 2021, former Indonesian President Joko Widodo attended the inauguration ceremony of the PT Gunbuster Nickel Industry smelter, which fully demonstrated the importance attached by the Indonesian government to the smelter at that time. The smelter was also once full of ambition, announcing plans to invest 3 billion US dollars in its construction. With its huge production scale, it once became one of the few enterprises in Indonesia that could compete with the industry giant Tsingshan Holding Group. But just a few years later, it is facing the dilemma of shutdown, which is really lamentable.

If PT Gunbuster Nickel Industry eventually shuts down, it will not only have an impact on the pattern of Indonesia's domestic nickel smelting industry but may also affect the supply balance of the global nickel market - after all, Indonesia occupies an important position in the global nickel supply system. In the follow-up, we need to pay close attention to the development dynamics of this smelter and how the entire nickel smelting industry will readjust and layout in the face of this crisis.

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DAWN | Pig Iron & Castings Procurement Advisor
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