Australian Nickel Producers Face Challenges Amid Low Prices
Melbourne – Australian nickel producers are feeling the impact of increased supply from rival Indonesia, leading to a reassessment of strategies by top global miner BHP Group. The decline in nickel prices, which have dropped by 40% to around $16,000 a tonne in the past year, has created a challenging environment for Australian producers.
Nickel has long been recognized as a critical material for electric vehicle (EV) batteries due to its ability to enhance energy density and increase the distance EVs can travel on a single charge. BHP has positioned nickel as a key element of its green strategy and forged a deal to supply Australian nickel to Tesla in 2021, boasting about the country’s rich resources and robust regulations.
However, the emergence of Indonesia as a major nickel supplier and the rise of alternative battery chemistries have impacted Australian nickel producers. The growing popularity of lithium iron phosphate (LFP) batteries, which do not require nickel, particularly in China, has led to increased affordability of EVs. This shift in demand has contributed to the decline in nickel prices.
UBS analyst Lachlan Shaw expresses skepticism regarding the near-term prospects for nickel producers. The challenges facing many nickel producers are unlikely to ease near term. We are bearish on the commodity and quite cautious on assets and producers, Shaw said.
Despite the challenging market conditions, BHP maintains its belief that high-quality nickel sulphide deposits found in low-risk jurisdictions, which require less energy for extraction compared to laterite deposits in Indonesia, will command a premium. Wyloo Metals, which recently acquired nickel miner Mincor, shares this sentiment, citing the need for a transparent pricing mechanism that differentiates between environmentally friendly and less sustainable nickel sources.
Currently, Australia’s high-cost producers are facing significant financial pressure, leading to writedowns and restructures. Canada’s First Quantum is the latest company to reduce nickel production in response to weak prices.
BHP’s nickel business suffered a steep decline in earnings in the 2023 financial year, plummeting 61% to just $164 million, accounting for less than 1% of the company’s overall earnings. BHP Nickel West Asset president Jessica Farrell acknowledges the challenges but assures stakeholders that the company is taking action to address them.
BHP is evaluating various options for its Western Australian nickel operations, including a major smelter renewal, a mine expansion, and the development of the West Musgrave mine acquired through the acquisition of Oz Minerals. However, analysts suggest that BHP may consider delaying the West Musgrave project until market conditions improve.
Analyst Glyn Lawcock comments on the current state of the nickel market, stating, Clearly right now nickel is challenged. [But] I think to write off nickel today for forever is a big call. Lawcock believes that even with the rise of LFP batteries, there will still be demand for other types of batteries. Furthermore, he anticipates that governments may introduce greener sourcing policies, potentially favoring nickel as a more sustainable option.
The year ahead poses a significant decision point for BHP as it navigates the volatility in the nickel market. The company must determine the best approach to ensure long-term competitiveness while accounting for evolving market demands and shifting battery chemistries.
In conclusion, the Australian nickel industry is grappling with low prices and increasing competition from Indonesia. BHP and other producers are reassessing their strategies as demand shifts away from nickel-based batteries. The rise of alternative battery chemistries, such as LFP, threatens the traditional dominance of nickel in the EV market. However, experts still see potential for nickel in the long term, especially if a transparent pricing mechanism distinguishes between sustainable and less environmentally friendly sources. The industry faces significant challenges in the near term, but time will tell how producers navigate this evolving landscape and shape their strategies for the future.
