Nickel Production Halted at Ambatovy Plant Following Pipeline Damage

Sumitomo Nickel

Nickel and cobalt production at Madagascar's Ambatovy plant has been suspended after damage to a slurry pipeline, a crucial component for transporting ore from the mine to the refinery. The suspension, announced by the plant’s majority owner, Japanese trading group Sumitomo, comes as a setback for one of the few remaining active producers of nickel briquettes.

Damage Sparks Concerns Over Ambatovy's Viability

On September 25, Sumitomo revealed that the pipeline damage led to an ore discharge, prompting the decision to halt operations. While there were no injuries reported, an investigation is underway to determine the cause of the incident. The disruption has raised concerns, particularly as Ambatovy is already grappling with high production costs and market pressures.

Ambatovy is one of the few facilities still capable of producing nickel briquettes, a key form of refined nickel used in various industries. With BHP no longer actively producing briquettes and Russia's Norilsk Nickel resuming production at its Harjavalta refinery after a temporary suspension by the London Metal Exchange, the global supply chain has faced volatility. However, trading firms report that the ban on Norilsk's production has been lifted, and output is ramping up, offering some relief to the market.

Despite this, the long-term future of Ambatovy remains uncertain. Trading companies have pointed out that the plant's high production costs significantly exceed current benchmark nickel prices, by as much as $10,000 per tonne, raising questions about its economic viability. "Sumitomo must be considering the mounting losses right now," a trading source remarked. "They have a reputation for being slow decision-makers, likely hesitating to halt production because they could absorb the losses against profits elsewhere."

The financial challenges facing the project have been underscored by a recent debt restructuring plan filed in a London court, as confirmed by Sumitomo Metals Mining representatives. This move suggests that the company is actively seeking solutions to mitigate the financial strain caused by declining nickel prices and operational inefficiencies.

In terms of output, Ambatovy's nickel production for April to June was around 8,000 tonnes, marking a 20% decline from the same period last year. The suspension of production due to the pipeline damage adds to existing concerns over the plant's future, and it remains to be seen how Sumitomo will navigate these mounting challenges.