UPDATE 1-China's Lygend starts milestone nickel project in Indonesia

* Lygend starts first HPAL production in Indonesia

* Company to send products to China soon

* Project start-up likely to pressure nickel price (Adds quotes, detail)

BEIJING/HANOI, May 19 (Reuters) - China’s Lygend Mining said on Wednesday its nickel and cobalt smelting project in Indonesia had made its first batch of mixed hydroxide precipitate (MHP), becoming the first high-pressure acid leach (HPAL) project in the country to reach production.

The $1.05-billion project on Obi island in the province of North Maluku is among several cobalt-nickel HPAL plants in nickel miner Indonesia that are under the spotlight as a source of supply for the burgeoning electric-vehicle battery sector.

“Our first batch of nickel and cobalt hydroxide products will be shipped to China soon, and gradually enter the global market,” said Lygend’s president Jiang Xinfang.

Jiang said that Lygend Resources and its Indonesian partner Harita Group plan to build other projects on Obi island to make nickel sulphate, precursors and stainless steel-related products.

“It means that there is a viable path to produce battery grade nickel with a reasonably low capital cost and a relatively short project timeline,” said independent consultant Steven Brown.

“With the nickel market already in surplus, we can expect the nickel price to drop if the commissioning process continues at this pace,” Brown added.

Lygend has been able to tap Chinese contractor Enfi Engineering Corp, which has experience in HPAL in Papua New Guinea, to design its project and benefit from relatively low-cost labour and nickel ore costs in Indonesia.

Lygend aims to reach first-phase annual capacity of 30,000-37,000 tonnes of MHP in the second half of 2021.

A flurry of HPAL projects, all involving Chinese companies, were announced a few years ago in Indonesia and raised eyebrows with their low cost estimates and short time frames.

The pandemic slowed their progress, with Lygend’s project delayed for nine months and only starting trial production last month.

Another HPAL project by GEM Co at the weekend shipped its core equipment to the island of Sulawesi from China and is aiming to start operating in early 2022.

That project, whose shareholders also include Tsingshan Holding Group and Japan’s Hanwa, had originally targeted first production in 2019.

Three-month nickel price on the London Metal Exchange fell 1.1% to $17,780 a tonne at 0904 GMT. Research house Antaike forecast an average nickel price in 2021 at $16,500 a tonne.

Reporting by Mai Nguyen in Hanoi, Min Zhang in Beijing and Tom Daly, editing by Louise Heavens and Jane Merriman