Growth of the Nickel Processing Industry in Southeast Sulawesi Slows Amid Downstreaming

The role of the processing industry in Southeast Sulawesi tends to decline. This situation needs to be watched out for in the middle of downstreaming.

KOMPAS/SAIFUL RIJAL YUNUS

Aerial photo of the PT Virtue Dragon Industrial Park nickel refining area in Morosi, Konawe, Southeast Sulawesi, Wednesday (22/3/2023).

KENDARI, KOMPAS — Until the first quarter of 2024, the processing industry business field in Southeast Sulawesi has the highest growth, up to 21.72 percent. However, industry figures based on nickel actually fell compared to the previous period. This situation is worth paying attention to because it has a major impact on the regional, as well as national, economic downstreamization of nickel carried out by the government.

Based on data from the Central Statistics Agency of Southeast Sulawesi, the economy of this province in the first quarter of 2024 compared to the first quarter of 2023 experienced a growth of 5.78 percent. In terms of production, the manufacturing industry sector experienced the highest growth at 21.72 percent.

Head of BPS Sultra Agnes Widiastuti explained that the processing industry business sector is growing along with the agricultural, mining and processing industry sectors growing positively in Southeast Sulawesi. However, among the various business fields, the processing industry has the highest growth.

"In terms of categorizing GDP growth sources based on fields of business, the manufacturing industry also holds the highest role at 1.88 percent. The rest is followed by government administration at 0.82 percent, and mining and trade at 0.72 percent each," said Agnes in Kendari on Monday (6/5/2024).

However, according to the same data, the growth of the processing industry actually decreased when compared quarterly. In the fourth quarter of 2023, the field of processing industry reached 28.25 percent. In the first quarter of 2023, the figure was 25.60 percent.

BPS SULTRA

The processing industry business sector grew by 21.72 percent in the first quarter of 2024, as released by BPS Sultra, Monday (6/5/2024).

The processing industry in Southeast Sulawesi currently includes the first stage of nickel processing. Companies that have nickel processing and refining facilities in Southeast Sulawesi are Virtue Dragon Nickel Industry and Obsidian Stainless Steel in Morosi, Konawe. Another company is state-owned, namely PT Antam in Kolaka. However, Antam's production is relatively small when compared to the two companies located in Morosi, Konawe.

Currently, these three companies routinely process nickelore into nickel pig iron (NPI), andferro nickel, also stainless steel. There are no companies yet that produce nickel sulfate, let alone the precursor and cathode.

Also read: First time since Downstreaming, Southeast Sulawesi Nickel Export Value Drops 19 Percent

Several companies and industrial areas are still in the construction and planning stages. Some of them plan to process nickel in advanced stages.

Contacted separately, Head of the Economics Laboratory at Halu Oleo University, Syamsir Nur, explained that although it has grown every quarter, the percentage of the manufacturing industry has actually declined compared to before. This can happen due to two factors, namely nickel price fluctuations at the global level and a decrease in demand, as well as companies that do not increase production for certain reasons.

"If compared to the same period in 2023, the decrease is quite significant, almost 5 percent. This, in my opinion, is something to be wary of. Especially when we see an increase in export volume, but its role is decreasing like it is now," said Syamsir.

KOMPAS/SAIFUL RIJAL YUNUS

PT Antam UPBN North Konawe office in Kendari, Monday (5/6/2023).

According to him, this situation will have a long-term impact on the government's nickel downstreaming efforts. This is because it implies that controlling the price of downstreaming products is highly dependent on external parties. As a result, even with high production, the spread value will not be high.

Moreover, the economy of Southeast Sulawesi is highly dependent on its processing industry and export products. These two sectors also have an impact on other economic activities, ranging from transportation, logistics, consumption, to housing and hospitality.

"Now, we are talking about the remaining stock of nickel. What will happen in the future if there is more massive use of alternative energy for electric vehicles or, worse yet, if our nickel reserves run out?" he said.

Also read: Economic Dilemma of Southeast Sulawesi's "Nickel Paradise"

The situation would be different if the downstream nickel products from Southeast Sulawesi are in the middle or final stage. The goal of exports is not only dependent on one destination country, namely China.

According to him, there is no other way to strengthen the economy except by proceeding on two sides. The first side is to accelerate the downstreaming process to the final level, rather than the first level as it is now. This is believed to reduce dependence on one country and have an impact on investment in the derivative sector.

"The most important thing is to strengthen Southeast Sulawesi's main economy, namely agriculture, plantations and maritime affairs. "That is the main sector that must also be paid attention to and become the focus of downstreaming," said Syamsir.

KOMPAS/SAIFUL RIJAL YUNUS

Karmin (54) walks across a wooden suspension bridge towards his rice fields in Paku Jaya Village, Bondoala, Southeast Sulawesi on Thursday (30/3/2023). The rice fields in this area continue to diminish as nickel processing industries become more widespread.