The global nickel market is currently experiencing an overabundance of supply, causing significant disruption for mining companies in the industry. BHP Group, the world's largest miner, has recently announced its plans to reassess its nickel business in order to navigate through this downturn. The price of nickel has dropped by 50% since the beginning of last year, mainly due to a lack of demand catching up with the increased supply from countries like Indonesia.
BHP Group has hinted at potentially devaluing its nickel assets, which involve open-cut and underground mines, as well as a refinery in Western Australia. The company is actively optimizing its operations under the name Nickel West, with the aim of finding ways to mitigate the drastic decline in prices.
In its quarterly report, BHP Group acknowledged that the nickel industry is currently undergoing a series of structural changes and is facing a cyclical low in pricing. These challenges are not unique to Nickel West alone.
While stainless steel remains the primary consumer of nickel worldwide, accounting for over 60% of its global demand, the usage of nickel in electric vehicle (EV) batteries has been steadily increasing. However, nickel is not the only commodity struggling in the energy transition. Both lithium and cobalt have seen their prices slump, partially due to the plateauing growth of EV sales in the United States.
BHP Group's perspective on the nickel market suggests a lack of optimism for a near-term recovery. Other companies are also responding to the decline in prices by scaling back their production and reducing their investments in response to these challenging market conditions.
Nickel Mining Slumps as Prices Weaken
Earlier this week, Canadian mining company First Quantum Minerals announced the suspension of mining operations at its Ravensthorpe nickel mine in Australia. The company cited weak prices and high costs as the main reasons for this decision. This follows the recent announcement from Panoramic Resources, administrators of the Savannah nickel operation, that it too would be suspending operations due to dwindling financial prospects. Additionally, miner IGO has forecasted another write-down for its Cosmos nickel project, highlighting the struggles faced by Western nickel miners.
One of the key challenges for Western miners is the stiff competition from nickel output in Indonesia. Indonesian production is known for its lower cost, and it has steadily increased its share of global nickel production for electric vehicle (EV) batteries. CRU, a London-based commodities business intelligence firm, estimates that Indonesia produced around half of the nickel used in EV batteries in 2022, compared to between zero and 5% in 2017. This figure is projected to rise to over 80% by 2027.
The oversupply of nickel in the market has caused prices to plummet. The benchmark nickel contract on the London Metal Exchange has dropped from over $30,000 per metric ton at the beginning of last year to approximately $16,000 per ton.
BHP, a major player in the mining industry with several undeveloped nickel deposits, has also been impacted. The company reported a 24% decrease in the price it received for nickel in the last six months of 2023 compared to the same period in the previous year. Despite this, BHP's own production of nickel during this period was 4% higher than last year. The company maintains its production forecast of between 77,000 and 87,000 tons for the year ending in June 2024.
In summary, the weakening prices and increasing competition from Indonesia have caused significant setbacks for nickel miners worldwide. The suspension of mining operations and write-downs reflect the difficulties faced by Western miners. As the oversupply continues to affect the market, it remains to be seen how the industry will adapt to these challenges.