Aoyama plans to build a new nickel refinery in Indonesia to avoid LME shortage in the future

“The company may decide to double the size of the factory,” added one of the people who asked not to be named because they had no right to speak publicly. Two other Chinese manufacturers, Zhejiang Huayou Cobalt Industry Co., Ltd. and CNGR Advanced Materials Co., Ltd., plan to build similar plants in China and Indonesia respectively. 

These plans represent a vote of confidence in the LME nickel contract, which has been difficult to return to normal after the crisis in March. The sharp decline in trading volume, shortened market operation time and frequent violent fluctuations have raised doubts about its continued applicability as a global benchmark. 

People familiar with the matter said that Aoyama may need to continue to use LME to hedge nickel price risk. They believe that the new conversion plant, which can produce both nickel sulfate and nickel metal, is a way to minimize the related risks, because most of their output is intermediate nickel products. Aoyama did not respond to repeated requests for comment. 

The new refineries may help reverse the differentiation of the nickel market. In the nickel market, the substantial increase in Indonesian production has put pressure on the price of intermediate nickel, while the nickel metal market is still tight. 

In addition, the liquidity of LME nickel contract collapsed after the short squeeze in March, which led to an abnormally high premium of LME price compared with other forms of nickel, such as nickel pig iron used as raw material for stainless steel plants and nickel sulfate used as raw material for battery industry.