Nickel Production Halt at Ambatovy Mine Threatens Madagascar’s Economy

Nickel, which accounted for 25% of Madagascar's export value in 2022, faces a significant disruption following an incident at the Ambatovy nickel mine. Japan's Sumitomo Corporation, which operates the mine, reported damage to the pipeline transporting ore to the processing plant, leading to a suspension of production. The halt at Madagascar's largest nickel mine comes as the operation already grapples with profitability issues.

Sumitomo has yet to disclose the full extent of the damage or provide a timeline for resuming production. This interruption could delay the mine's planned ramp-up. For the fiscal year ending March 2024, the company had produced 31,000 tonnes of nickel, falling short of its 40,000-tonne target. Sumitomo now aims for 35,000 tonnes by the end of the current fiscal year.

The suspension is not just a setback for Sumitomo, which wrote down $606 million in assets earlier this year, but also for Madagascar's economy. Nickel export revenues in the first half of 2024 fell by 56.5%, driven by a 35% drop in export volume and a 33.1% decline in average prices. With nickel generating $874 million in export revenues in 2022, any further production issues could worsen the country’s trade deficit.

In contrast, the global nickel market may see price gains from this disruption. A prolonged halt at Ambatovy, combined with reduced ferronickel production from China’s Tsingshan in Indonesia, is likely to push prices higher. Nickel, which had dropped by more than 40% in 2023, showed signs of recovery, trading at $18,220 per tonne on Wednesday, as Tsingshan's permit delays continued to influence the market.