[Kabar-indonesia] PT Inco Hit by Lost Output, Oil Prices [2 reports]

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also: Indonesia's Inco 06 nickel output seen at 158 mln pounds

The Jakarta Post
Wednesday, August 2, 2006

Lost output, fuel prices hit Inco 

The Jakarta Post, Jakarta

Nickel producer PT International Nickel Indonesia (PT Inco) reported Tuesday 
a 17.1 percent drop in its net profit for the first half of 2006, partly due 
to lost 
output and partly due to higher oil prices that pushed up production costs.

Inco first-half net profit fell to US$123.3 million from $148.7 million in 
the corresponding period last year, president and chief executive Arief Siregar 
said. 

Production of nickel in matte in the first half declined by 7.8 percent to 
33,200 tons (73.3 million pounds) from 36,000 tons (79.4 million pounds) in the 
same period of 2005 due to a fire at one of the company's furnaces in Soroako, 
South Sulawesi. 

The transformer at Furnace No.2 caught fire in late May causing the company 
to delay production, Arief said. 

"We had to postpone the heat-up process for three weeks in order to complete 
a risk analysis of certain peripheral electrical components," he said. 

As a result of the damage, he added, Inco was forced to reduce its 2006 
production target from 167 million pounds of nickel in matte to approximately 159 
million pounds. 

Arief said that rising world oil prices had also contributed to the decline 
in net earnings. Unlike oil-based fuels for public consumption, which are 
heavily subsidized, the price of industrial oil-based fuels are adjusted every 
month and move directly in line with oil-price fluctuations on the global markets. 

During the first semester, world oil prices stood at between $60 and $68 per 
barrel, far higher than the average of $40 in 2005. 

Arief said that in order to reduce production costs, the company planned to 
minimize the use of diesel and increase the use of coal in its operations. 

"Forty-five percent of our production costs are due to energy. With the 
(planned) diversification, we can reduce our costs by about 10 to 15 U.S. cents per 
pound," Arief explained. 

He said the company would be able to further reduce production costs after 
the completion in 2009 of the Karebe dam on the Larona River, which would power 
a 90-megawatt (mw) hydro plant. 

Currently, Inco operates two dams: the Larona dam which powers a 165 mw hydro 
plant and the Balambano dam, which powers a 110 mw plant. (05) 

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Indonesia's Inco 06 nickel output seen at 158 mln pounds

JAKARTA, August 1 (Reuters) - The Indonesian unit of Canadian nickel
producer Inco Ltd. said on Tuesday its nickel output for this year may
fall to 158 million pounds due to a delay in restarting its second
furnace after a fire in late May.

Arif Siregar, president director of PT International Nickel Indonesia,
said the furnace has been repaired but it would take more time to
bring it back into operation.

"There has been a delay in heating the furnace. We expect the furnace
to resume normal operations in the fourth week of August," Siregar
told reporters. "Thus we can only produce 158 million pounds of nickel
this year."

Initially, the furnace was expected to resume operations in early August.

Inco had earlier said the fire at its second furnace was expected to
cut its nickel matte output to 159-160 million pounds this year. It
had initially targeted 2006 output of 167 million pounds.

In the first half of 2006 its nickel matte output fell 8 percent to
73.3 million pounds, or 33,300 tonnes, compared with the same period
last year.

Nickel matte is an intermediate product from a smelter that must be
further refined to make pure metal.

Siregar said nickel prices would remain strong in 2006 as demand would
continue to outstrip supply due to higher stainless steel production.

"This year will be another year where high nickel prices will
encourage producers to operate at or above capacity," he said.

On the London Metal Exchange on Tuesday nickel <MNI3> was down $150 at
$25,300/25,500 a tonne, or $11.48/$11.56 per pound.

On Monday nickel closed up $800 at $25,450 after touching $25,800.
Nickel hit a record $26,850 earlier in July.

"The nickel market is very strong and should remain so for some time
to come," Siregar said.

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Joyo Indonesia News Service
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