Antam upbeat on future despite falling prices

The Jakarta Post launched a biweekly corporate review of publicly listed companies on Aug. 11. Today's edition focuses on the nation's second largest nickel producer, PT Aneka Tambang (Antam). Here are the stories. , 

Ika Krismantari   |  Mon, 09/22/2008 12:39 PM  |  Business

Slumping nickel prices mean tough times for nickel producers, with many struggling to cope and contend with hefty cuts in profit.

The sector has been on a roller coaster ride over the past year, with the latest incident a tumble in prices to around US$ 8 a pound, a 50-percent drop from last year when prices reached a record-breaking $16 a pound.

According to Bloomberg, nickel for three-month delivery on the London Metal Exchange fell 21 percent to $17,400 a metric ton -- or $7.90 a pound -- this quarter, as of last week.

Analysts believe the price this year is a correction of last year's extreme, as stainless steel makers resorted to using substitutes -- such as manganite and chrome -- for nickel in their production.

After enjoying hefty profits, nickel producers now find themselves swallowing bitter pills.

Publicly listed PT International Nickel Indonesia (Inco), the nation's largest nickel producer, suffered a 58-percent drop in its net profit from a year earlier to $295 million in the first semester.

PT Aneka Tambang (Antam), the second-largest publicly listed producer saw its first-half net profit decrease 49 percent to Rp 1.46 trillion ($154.7 million) compared to last year.

Shares of Antam, among the most active on the Indonesia Stock Exchange, have dropped more than 77 percent so far this year.

Nevertheless, the state-controlled company expects to see the light at the end of the tunnel by the end of this year.

Alwin Syah Loebis, Antam's newly appointed president director, estimates nickel prices will climb to $10 a pound in November, reaching $12 in early 2009, with the price of chrome expected to triple by the end of this year, bringing the allure of nickel back to the market.

Chrome is the preferred substitute for nickel.

"Maybe I'm a bit optimistic, but it (the nickel price) will recover slightly in November," Alwin said in a recent interview.

Based on that projection, he hoped the company's performance in the second semester would be slightly better than in the first.

He declined to give exact figures.

HD capital analyst Adrian Rusmana begs to differ, saying Antam will remain prone to losses if it does not start boosting efficiency and business development.

"That price forecast is too speculative. We have to remember that (currently) when the price of other commodities falls, chrome stays on top," he added.

Rather than focusing on unpredictable price variables, Adrian suggested Antam concentrate on its efforts to boost performance, such as raising production, cutting production costs and continuing the diversification of its programs.

According to Alwin, efforts have been put in place to boost production and cut costs.

Based on the company's first half report, material costs -- comprising 33 percent of total production costs -- soared 148 percent to Rp 1.12 trillion, with ore mining expenses (26 percent of production costs) and fuel costs (13 percent) rising by 130 percent and 52 percent to Rp 891 billion and Rp 434 billion, respectively.

Antam will optimize the production capacity of its existing plants to reach 18,000 tons of ferronickel this year, up 5.8 percent from last year's target, Alwin added.

Total production capacity is currently at 24,000 tons.

As for its efficiency program, the company hopes to cut expenses in non-productive sectors by 10 percent in the second semester to offset unavoidable increases in production costs.

Over the long term, the company will build power plants fired by coal, which is cheaper than the diesel currently used.

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