Nickel Production Halted at Ambatovy Plant Following Pipeline Damage

Nickel and cobalt production at the Ambatovy plant in Madagascar has been suspended due to damage to a slurry pipeline, essential for transporting ore from the mine to the refinery. This decision, made by majority owner Sumitomo, represents a significant setback for one of the last active producers of nickel briquettes.

Pipeline Damage Raises Viability Concerns
On September 25, Sumitomo reported that the damage led to an ore discharge, prompting an immediate halt to operations. Fortunately, no injuries were reported, but an investigation is currently underway to identify the cause. This incident is particularly concerning as Ambatovy already faces high production costs and mounting market pressures, raising questions about its economic viability.

Market Dynamics and Economic Viability
Ambatovy is among the few facilities capable of producing nickel briquettes, a vital form of refined nickel. With BHP ceasing briquette production and Russia’s Norilsk Nickel resuming output at its Harjavalta refinery, the global nickel supply chain has experienced significant volatility. However, reports indicate that the ban on Norilsk’s production has been lifted, allowing for increased output and potential market relief.

Despite these dynamics, industry sources have highlighted that Ambatovy’s production costs are substantially higher than current benchmark nickel prices, potentially exceeding them by up to $10,000 per tonne. A trading insider noted, “Sumitomo must be grappling with increasing losses,” suggesting hesitation to cease production due to its capacity to absorb losses elsewhere.

Financial Challenges and Production Declines
Sumitomo has filed a debt restructuring plan in London, signaling ongoing financial struggles linked to falling nickel prices and operational inefficiencies. Additionally, Ambatovy’s nickel output from April to June was approximately 8,000 tonnes, reflecting a 20% decrease compared to the same period last year. The recent production suspension exacerbates existing uncertainties about the plant’s future operations.