Sumitomo Metal Mining will spend over 200 billion yen ($1.77 billion) to set up a nickel smelter in Indonesia to meet strong demand for the metal used in electric car batteries.

Nickel is an essential part of the lithium-ion batteries that power electric vehicles, and demand for it is rising globally. Rivals from China have been increasing investment in Southeast Asia, where nickel production is concentrated, to secure stable supplies of the metal.

The Tokyo-based company is conducting a feasibility study for the facility in the Pomalaa area of Southeast Sulawesi Province, targeting annual output of 40,000 tons of an intermediary material produced from nickel ore.

The facility's output is to be shipped to Japan, where Sumitomo Metal will process it further into a cathode material for supply to companies such as Panasonic. Sumitomo Metal has been working to boost monthly output capacity of the material 30% to 4,550 tons by the end of 2018. The new facility will broaden sourcing options beyond the existing refinery operations in the Philippines and bolster cost competitiveness.

Few companies can handle everything from raw material procurement to refining, but Sumitomo Metal can. It is currently the only Japanese company that refines nickel abroad, and its strength lies in its ability to extract high-quality material even from ore with low nickel content.