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Competition in smelting industry tightens
PT Smelting, the only copper refining company in the country for the past 20 years, will soon face new competitors as the government is pushing mining companies to build their own smelters
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span>PT Smelting, the only copper refining company in the country for the past 20 years, will soon face new competitors as the government is pushing mining companies to build their own smelters.
There are two copper smelters in the pipeline, one from gold and copper miner PT Freeport Indonesia and another from local miner PT Amman Mineral with a planned processing capacity of 3.3 million tons of copper concentrate.
Both Freeport and Amman are regular concentrate suppliers for PT Smelting, which has a smelter in Gresik, East Java. This year, the smelter received a total of 1.1 million tons of copper concentrate.
When asked about the situation, PT Smelting president director Hiroshi Kondo acknowledged the imminent challenge, saying in five years it would be a difficult time for the company. Its shareholders are mainly Japanese firms.
“I think it [refining business] will no longer be a lucrative market five years from now. Even though we’re not afraid of [the challenges that lie ahead], it might be a difficult time for us,” he said during a press visit to the Gresik smelter.
The supply of concentrate might not be a problem as Freeport Indonesia holds 25 percent of shares in PT Smelting and the prospective smelters would not be enough to process all of the concentrate supply, the company said.
PT Smelting has been catering to copper cathode needs. Copper cathode is used in the tubing, wire and cable industries for both the domestic market and export markets to Asian countries such as Malaysia, Thailand and Vietnam.
Around 60 percent of its products are for export while the rest are for the domestic market. The domestic absorption is smaller because of the lack of local downstream industry sources that can absorb the “intermediate” product.
This year the company targeted the production of 291,000 tons of copper cathode, a 21 percent increase from last year’s realization of 242,000 tons.
By-products for production include sulphuric acid at 1.04 million tons, copper slag at 805,000 tons, gypsum at 31,000 tons and anode slime at 2,000 tons.
Kondo further said that, at the beginning of the company’s establishment, shareholders expected to have almost all of its production go to the local market, believing that the downstream industry would be developed.
“We have a dream to sell out our copper cathode only in the Indonesian market, but now only 40 to 50 percent of our products can be absorbed by the local industry,” he said.
Hence, the company hopes that the domestic market could be improved with upcoming state-endorsed projects such as “Industry 4.0” and the development of electric vehicles, which could jack up the company’s sales performance in the domestic market.
“Industry 4.0 will absorb more copper cathode,” PT Smelting general affairs, legal, human resources and industrial relations manager Irjuniawan R Radjimin said.
In the domestic market, most of the copper cathode had been used by the wire industry and some by the cable industry, but the tubing industry had yet to use any, the company said.
Based on company data, ASEAN copper cathode demand in 2019 is estimated to stand at 1.2 million tons with Indonesia’s demand to stand at 200,000 tons, comprising 16.6 percent of the total demand.
Thailand and Vietnam are the two biggest users of the product with more than 300,000 tons of copper cathode demand in 2019.
Besides looking at the tight supply and demand of producing copper cathode, a low margin of profit for the smelter industry is also another challenge facing business players.
PT Smelting senior manager Bouman T. Situmorang said it was much easier and more profitable to become miners and only sell copper concentrate as smelters would only increase the cost of production.
“In 2018, miners could get an income at 278.7 US cents per pound or 91.98 percent from the average price of copper at 303 cents per pound. Yet, copper smelter’s income could only reach 24.3 cents per pound or only 8.02 percent from the copper price,” he said.
Indonesian Smelter and Mineral Processing Association (ISPA) chairman R. Sukhyar said the government should improve the use of copper cathode in the domestic market, especially with the coming of new smelters.
“Our domestic use of copper cathode hasn’t improved significantly and we would still mostly export it. This is the work for the Industry Ministry, to be more active in the process of taking in cathode for the local industry,” he told The Jakarta Post by phone on Friday.
The government set a target to complete 30 smelters by 2022, three of which are copper smelters.
The obligation for miners to build smelters is regulated under Law No. 4/2009 on coal and mineral mining, which stipulates that all miners need to create added value to mining products in order to contribute to a trickle-down effect for the local economy.
Freeport Indonesia’s planned smelter will be located in Gresik, with development expected to be fully completed by the end of 2022, while Amman Mineral’s refinery will be located in West Sumbawa, West Nusa Tenggara.
Previously, Amman Mineral president director Rachmat Makassau said the company was completing the front end engineering design (FEED) stage of its smelter, with 13.6 percent of the entire project completed.
“We hope that it could be operated by the end of 2022 and fully operated at its maximum capacity in 2023 as the commissioning set-up process needs a year,” he told press Tuesday.
