Nickel Market in Chaos as Supply Floods from Indonesia, Threatening Global Mines
Just 18 months ago, the world’s largest mining company, BHP Group, was riding high on the nickel frenzy. They had secured a deal with Tesla Inc. to supply the crucial ingredient for electric vehicles, positioning themselves as a key player in the race to decarbonize the world. However, the nickel market has since been thrown into chaos due to a flood of new supply from Indonesia, causing mines worldwide to face closure or seek bailouts.
Traditionally, nickel has been divided into two categories: low grade for stainless steel production and high grade for batteries. A massive expansion of low-grade production in Indonesia led to a surplus, but recent processing innovations have refined this surplus into high-quality nickel for the battery market. As a result, prices for the metal have plummeted over 40% from a year ago, exacerbating the challenges faced by an already weak market.
The scale of this collapse has raised concerns about the future of nickel mines outside of Indonesia. Tom Price, head of commodities strategy at Liberum Capital Ltd., believes that mines in Western Australia and New Caledonia are particularly vulnerable. In New Caledonia, the French government has been forced to intervene to keep essential mines and plants operational. In Australia, BHP is reviewing the future of its flagship Nickel West mine, while other companies like Panoramic Resources Ltd., IGO Ltd., Wyloo Metals Pty Ltd., and First Quantum Minerals Ltd. are suspending operations or shutting down sites.
Producers in Western Australia have turned to the government for assistance, requesting tax credits for downstream processing. However, even with production pullbacks, it is unlikely that nickel prices will see immediate support. Indonesian production, which already accounts for half of global supply, is projected to continue exerting downward pressure on prices until at least 2024. The country’s rapid expansion has drawn criticism due to its reliance on coal-powered energy and the destruction of rainforests.
Despite hopes that buyers paying a premium for “green nickel” would help lift prices, there has been little evidence of this so far. Automakers remain content with purchasing Indonesian nickel, leaving little relief for miners elsewhere. The only potential solution to stop mine closures and project cancellations is a sustained lift in nickel prices, which can only be achieved through a recovery in nickel demand.
The chaos in the nickel market highlights the challenges faced by mining companies as they navigate the transition to a greener future. It also raises concerns about China’s control over key commodities, as its companies lead much of Indonesia’s nickel production. The future of nickel mines outside of Indonesia remains uncertain, and the industry is eagerly awaiting a demand recovery that can stabilize prices and secure their future.
Overall, the flood of supply from Indonesia has disrupted the nickel market, threatening global mines and leaving mining companies scrambling to find solutions. The industry is at a crossroads, and only time will tell how it will adapt to these new challenges and ensure its survival in an increasingly volatile market.