Just a year and a half ago, the world witnessed a surge in excitement within the nickel industry. BHP Group, the largest mining company globally, made headlines by securing a deal with Tesla Inc. to supply a vital component for electric vehicles. It was poised to engage in a competitive battle with Australian billionaire Andrew Forrest for control of one of the world’s most promising mines.
Nickel, once viewed as a bright spot for BHP, was strategically identified by its management as a key growth pillar. The metal was seen as a forward-looking commodity that could offset the company’s departure from fossil fuels, tapping into the rising demand driven by global efforts to decarbonize.
However, optimism has rapidly turned into turmoil for BHP and other mining giants. The nickel market has been thrust into disarray due to an influx of new supply from Indonesia, fueled by substantial Chinese investments and significant technological advancements. Mines worldwide face the risk of closure, with some seeking state bailouts or facing bankruptcy. BHP is now contemplating the fate of its flagship Nickel West mine in Australia.
Until recently, industry leaders were overwhelmingly optimistic about nickel’s prospects. This once mundane metal, primarily used for stainless steel, became a crucial ingredient for electric vehicle batteries. Forecasts predicted a supply shortage for years to come, prompting mining companies to seize the opportunity to enhance their green credentials.
Traditionally, nickel was categorized into low-grade for stainless steel and high-grade for batteries. A massive expansion of low-grade production in Indonesia created a surplus, but processing innovations have refined that glut into a high-quality product entering the battery market.
Consequently, metal prices have plummeted over 40% from a year ago, compounding challenges in a market grappling with weak demand and persistent concerns about China’s economy. Macquarie analysts estimate that over 60% of the global industry is operating at a loss at current prices.
The extent of the collapse raises doubts about the future of most nickel mines outside Indonesia. It also heightens concerns among US and European policymakers about China’s dominance in key commodities, as Chinese companies lead much of Indonesia’s production.
“After witnessing the nickel world’s decline for over a year—with a 50% reduction in its metal price—we now have some high-cost assets exposed,” said Tom Price, Head of Commodities Strategy at Liberum Capital Ltd. He added that mines in Western Australia and the French territory of New Caledonia are likely the most vulnerable.
In New Caledonia, once seen as the future of nickel production, the French government is intervening to keep essential mines and plants operational. Officials are negotiating with key shareholders of three processing plants for a rescue deal, with no breakthrough yet.
The situation is equally grim in Australia.
BHP’s review of nickel assets in Australia, Panoramic Resources Ltd. suspending a key mine, and other closures indicate a bleak scenario. Miners in Western Australia are appealing to the federal government for tax credits for downstream processing at a crisis meeting held recently.
Despite production cutbacks starting to take effect, they are unlikely to offer immediate relief to nickel prices, according to Allan Ray Restauro, an analyst at BloombergNEF. He remarked, “The flood of supply from Indonesia is projected to continue exerting downward pressure on prices in 2024.”
Indonesian production, already responsible for half of the global supply, may resist output cuts, as the nation has become a global nickel hub with efficient plants benefiting from inexpensive labor, cheap power, and readily available raw materials.
However, criticism surrounds Indonesia’s rapid expansion. Much of its production relies on coal-powered energy, resulting in higher emissions per ton compared to rival producers. Additionally, the swift expansion is contributing to deforestation.
Mining giants like BHP have promoted the idea that buyers paying a premium for “green nickel” would boost prices. However, there is little evidence of that so far. BHP conceded last year that automakers remain content to buy Indonesian nickel, suggesting little relief for miners elsewhere in the near future.
