Asian Metal: Thank you accepting Asian Metal's interview, Mr. Huang! Could you please brief us about your company first?

Huang: Ningbo Brillimetal Co., Ltd focuses on the import trade of raw materials for stainless steel, including ore and ferroalloy. Some of the ore products we deal with are nickel ore, manganese ore and coal, and for ferroalloy, we trade ferronickel, ferrochrome and nickel plate. Our operation model is quite simple: buying ore and ferroalloys from foreign suppliers and providing them to domestic traders and end users. We trade several hundreds of thousands tonnes of nickel ore per month.

Asian Metal: Ever since Indonesia has banned the export of nickel last year, many Chinese enterprises chose to build nickel smelting programs here, and your company is one of them. Could you please give us an introduction to your program in Indonesia?

Huang: Our program is located in Kab Konawe Selatan, Sulawesi Tenggara in southeastern Indonesia, and the preparatory work began in 2012. Total investment of the program will be USD100 million, and Phase I will cost USD15 million. Phase I consists of a blast furnace of 80 m3 and its support facilities. Now that the main construction and the support facilities have all been completed, we plan to conduct equipment debugging very soon and put the program into production in July. The program will mainly be used for the production of ferronickel 10% with a potential capacity of 20,000 entity tons per year.

Asian Metal: We know that Indonesia has very complex investment environment and the infrastructure here is quite laggard. So it must be difficult to build a new program here. What kind of problems have you encountered for this program? And how did you cope with these problems?

Huang: We encountered a variety of problems during the construction of this program. Just like you said, the infrastructure here lags way behind that of China, for example, no power plants and high ways are available. So we have to consider building these things before the construction of the plant. Also, the ports in Indonesia are not as well-equipped as those in China, which usually means higher transportation costs, no matter it is for raw materials, for equipment or for finished products. The next problem is the numerous legal requirements and policies, and we have to strictly comply with all of them. At last, do not underestimate the impact of the local communities, ensure smooth communication with these local communities in the process of both construction and production is of great importance. These are problems that any investors might have. So in one word, to build a new program in Indonesia is just not as easy as some investors might think.

Asian Metal: This year, China’s rigorous environmental policies have forced many ferronickel plants to suspend production. And it is expected that more substandard ferronickel enterprises will have to stop production or even shut down as the impact of the environmental policies become even greater. So what’s the situation of Indonesia like? Is it possible that the metallurgical programs under construction will also be impacted by the local environmental policies in the future?

Huang: Indonesia has formulated very strict environmental policies actually. As far as I could recall, it took quite a long time for us to get the approval for the program since we started preparation in 2012, and we had to get more than 20 papers of approval before we get the final one. It is not as simple as many investors thought: you get the equipment transferred and installed and then done. They actually have very rigorous standards in environment and other aspects. And the local government keeps adding more requirements during the process. So if you don’t do well the design, the installment of environmental protection equipment and the community communication, you will come across all kinds of troubles in the future. Therefore, we design our plant and implement the environmental protection measures strictly in accordance with the requirements of the government. To abide with the local laws and policies, that’s the best way investors could do to avoid many potential problems in the future.

Asian Metal: In recent years, Indonesia exports more and more ferronickel to China but the ferronickel for sale in the market is not that much. What do you think of the Indonesian ferronickel quality? How do they set the price for the material? Is the profit of Indonesian ferronickel more than that of Chinese-origin ferronickel? And will the ferronickel from your company be supplied to some certain steel mills or be sold directly in the market when your ferronickel project is put into production?

Huang: The quality of Indonesian ferronickel is qualified for general requirements, which nearly has no difference with that of Chinese ferronickel. Currently they set the ferronickel price according to the market trend, mainly based on the purchase price of Chinese stainless steel mills. But with the continued increasing of ferronickel supply, the price is likely to be determined by the combination of LME nickel average price setting and purchase price of steel mills in the future.

The profit of ferronickel produced in Indonesia is more than that of the material produced in China but it is also determined by the following factors: 1. The smelting equipment should be suitable for the local production condition. 2. The production technology, the design of equipment, and the ratio of raw materials and auxiliary materials should be reasonable. 3. The factory location should be convenient for transportation with low logistics costs. 4. The quality of nickel ore used by the smelters should be qualified for production requirements. Then a much larger profit margin will be seen in ferronickel production relatively.

Our own products will be sold in Chinese market when it goes into production and the detailed method of price setting will be decided when the product is produced.

Asian Metal: According to the statistics from Asian Metal, the new capacity in 2015 is expected to be 424,000t while that in 2016 will be about 3.92 million tons which is up by 226.01% over the total capacity of 1.2024 million tons in 2015. The Indonesian ferronickel capacities increase rapidly, will most of the smelting projects go into production on schedule? When will the production of Indonesian ferronickel replenish the demand from stainless steel mills in China to some extend? Will the supply and demand of nickel be out of balance? And will the nickel price trend be influenced?

Huang: As we just mentioned, Indonesian ferronickel production is facing with many difficulties. In my opinion, most smelting projects may not go into production on schedule or may delay production at least. The nickel price trend will also have influence on the production schedule. If LME nickel price continues to hover at around USD14,000-15,000/t, more investors may put off investing plans as well. However, if LME nickel price can move up to about USD20,000/t or higher, more investors will actively come into the investment of ferronickel smelting projects. I think the Indonesian ferronickel supply is likely to see an obvious increase from 2017 to 2018 when it may reflect the nickel price trend in return.

Asian Metal: Indonesian nickel ore imports has increased since last year, but nickel ore should be lack of supply based on the calculation of China's nickel consumption. However, the current transactions in Chinese nickel ore market are inactive, what’s your point of view? Will the nickel ore supply from the Philippines be enough for the demand from Chinese ferronickel plants? When will the obvious shortage be seen in the market?

Huang: The current high price of nickel ore is the main reason for the inactive transactions in Chinese nickel ore market, which is not reasonable but unchangeable. Chinese participants are mainly active in the downstream smelting market with nickel ore sources being held by other participants. It is hard for ferronickel producers to benefit margins as miners raise the quotation as a result of limited nickel ore activities.

The nickel ore supply from the Philippines will be difficult to meet the demand from Chinese ferronickel plants in the long run. However, the weak demand from the end-user market leads to the high level of inventory now and it looks like the supply is sufficient. If the nickel price increases, the stainless steel and ferronickel markets improve, the demand for nickel ore will move up. And soon after Chinese spot market will realize de-inventory of nickel ore, then the insufficient supply of nickel ore will be reflected.

Asian Metal: For the previous months this year, China has carried out many favorable policies continuously, but the nickel price is lack of support to move upward and hovers at RMB90,000-110,000/t within a narrow range. What do you think of the nickel price trend in H2?

Huang: Structural adjustment is being conducted in China and China’s economy is improving gradually. With the stabilization and improvement of real estate investment market, the metal and manufacturing industries will be strengthened as well in H2 of 2015. I think the market in the second half of 2015 will performance better than the first half of this year and the nickel price is likely to pick up gradually.

Asian Metal: Thanks again for granting us this interview. We wish you and your business the best!