Nickel Market in Chaos as New Supplies from Indonesia Flood the Industry
The nickel market is in a state of chaos as new supplies from Indonesia flood the industry, causing mines across the world to face closure and others to seek state bailouts or go bankrupt. This sudden turn of events has caught many mining companies off guard, including BHP, which is now considering the future of its flagship Nickel West mine in Australia.
Until recently, industry leaders were optimistic about the prospects for nickel. The metal, traditionally used to make stainless steel, has become a crucial ingredient for electric vehicle batteries. With a projected supply shortage, mining companies saw an opportunity to enhance their green credentials. However, a surplus of low-grade nickel production in Indonesia, coupled with processing innovations, has led to a crash in prices by over 40% from a year ago.
The collapse in prices has left the industry questioning the viability of nickel mines outside of Indonesia. This situation has also raised concerns among US and European policymakers about China’s control over key commodities, as Chinese companies lead much of Indonesia’s production. Tom Price, head of commodities strategy at Liberum Capital Ltd., believes that mines in Western Australia and the French territory of New Caledonia are particularly vulnerable.
In New Caledonia, the French government has been forced to intervene to keep essential mines and plants operational. However, no breakthrough has been achieved in rescue negotiations with key shareholders of three processing plants. Australia is also facing a bleak situation, with BHP reviewing its nickel assets and other companies like Panoramic Resources Ltd., IGO Ltd., Wyloo Metals Pty Ltd., and First Quantum Minerals Ltd. suspending or shuttering their operations.
Miners in Western Australia have turned to the federal government for assistance, requesting tax credits for downstream processing. However, even with production cutbacks underway, immediate support for nickel prices is unlikely. Allan Ray Restauro, an analyst at BloombergNEF, predicts that the flood of supply from Indonesia will continue to exert downward pressure on prices until 2024.
Indonesia’s emergence as a global nickel hub has drawn criticism due to its reliance on coal-powered energy, resulting in higher emissions compared to rival producers. Additionally, its rapid expansion is causing deforestation. Mining companies like BHP have suggested that buyers paying a premium for “green nickel” could help lift prices, but there has been little evidence of this so far. Automakers continue to prefer Indonesian nickel, indicating that relief for miners elsewhere is unlikely in the near future.
The only solution to prevent further mine and project closures is a sustained lift in nickel prices. Liberum’s Tom Price emphasizes that only a recovery in nickel demand can achieve this. As the chaos in the nickel market continues, the industry waits anxiously for signs of improvement.
Source: Thomas Biesheuvel