Tsingshan has in recent years been investing heavily in Indonesia, turning the nickel-rich Southeast Asian nation into a hub of stainless steel and nickel production and a possible top supplier of electric vehicle battery chemicals.
"(It's) still under discussion," a Tsingshan official said, referring to the possible sale, without elaborating.
Two other sources at Baowu confirmed the talks, with one saying that the acquisition would be part of the Chinese state-controlled steel firm's long-term goal to expand in the stainless steel sector, especially in Southeast Asia.
It would also be in Baowu's interests to expand into nickel, most of which is used in making stainless steel.
"Our layout in the nickel industry is quite limited, and it is now too late to buy resources and invest a large amount of money to build factories," said a second source at Baowu.
"Tsingshan has the intention to sell some of their assets, and build good relationships with a state-owned company. Both sides are interested in getting a deal," the source added.
Baowu did not respond to a request from Reuters for comment and Tsingshan could not be reached for comment.
Bloomberg News first reported the possible sale on Monday. It could be worth up to $4 billion and cover stainless steel and nickel pig iron plants in Indonesia's Morowali Industrial Park.
The reason for the sale was that Tsingshan's boss, Xiang Guangda, had been "rethinking" his company's future in a short squeeze when he faced billions of dollars in mark-to-market losses, Bloomberg reported.
Tsingshan was caught in the cross hairs this year after its short positions in nickel were exposed by a price surge of the metal on the London Metal Exchange - partly due to fear of disruption of supplies from Russia because of sanctions over Ukraine.
(Reporting by Siyi Liu in Beijing and Mai Nguyen in Hanoi; Editing by Robert Birsel)
By Siyi Liu and Mai Nguyen
