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Low-Cost Nickel from Indonesia is Flooding The Market

Via Metal Miner

 

The global nickel mining industry is under stress, and the primary reason is an oversupply of low-cost nickel from Indonesia. Moreover, this constant supply continues to support a major global surplus, placing downward pressure on the nickel price. At this point, the Southeast Asian nation has already cornered more than half of the world's supply of this critical metal.

Indonesia's ascent as the leading player in the global nickel industry, leveraging Chinese capital and innovation, proved remarkable. In fact, according to this report, the country's dominance comes despite concerted resistance from the European Union via the World Trade Organization.

In just over a decade or so, Indonesia managed to completely transform its nickel export business while surging its mine output nine-fold. Together, China and Indonesia now produce about 70% of the world's total nickel supply. Unable to compete with the formidable capital and low operating costs of Indonesian operations, competitor nickel miners in Australia and elsewhere could potentially go out of business.

Mining Companies, Experts Warn of Shutdowns

French miner Eramet recently warned that the day is not far off when Indonesia will cement its position as the world's number one supplier, wiping out its rivals. Indeed, the Financial Times quoted CEO Christel Bories as saying Indonesia could end up supplying over three-quarters of the world's highest class of pure nickel in another five years. Hidden somewhere between the lines was the message - "competitors beware."

Andrew Forrest, Founder and Chairman of Fortescue Metals Group and one of the richest people in Australia, recently asked the London Metal Exchange to understand the difference between "dirty" and "clean" nickel. Fearing the closure of mines, he told reporters that the Exchange must learn to segregate nickel based on its associated carbon emissions, allowing purchasers to choose the sustainability of their products. Andrew was perhaps referring to companies using batteries from cheap nickel mined in Indonesia, which many accuse of having a higher emissions footprint.

It's true that Indonesia uses coal-fired electricity to mine much of its nickel, leaving behind a large carbon footprint. There are also allegations of deforestation, pollution, and biodiversity loss, mainly stemming from a report by U.S.-based non-profit Climate Rights International. The report specifically referred to the nickel mining and processing project on an island called Halmahera, where a project cleared thousands of hectares of forest and displaced people while also polluting both rivers and the sea. 

On the face of it, Indonesia calls its nickel policy a move towards clean energy. Still, its critics say that the real position contradicts the government's official stand. 

Falling Nickel Price Forcing Some Mines Out

Nonetheless, some nickel mines have already shut down, while others must consider doing so soon. For example, Forrest's Wyloo Metals Ltd. announced last month it would close its Western Australian mines.

Meanwhile, large miners like BHP recently went on record stating that it's highly unlikely its nickel operations would turn profitable before 2030. This is despite nickel being highlighted as a significant growth opportunity for BHP just last year. That said, the company recently announced plans for a comprehensive review of its entire nickel operation, potentially involving the closure of Nickel West, a move that would jeopardize over 3,000 jobs. One of the reasons for the dramatic fall in profit for BHP stems from it writing down the value of nickel assets in Western Australia. 

Rare earths producer Lynas recently issued a warning for all governments, asking them to be vigilant to the knockdown effects of the nickel meltdown. One of the biggest producers of rare earths outside of China. Lynas recently posted a 74% slide in net profit to just U.S. $39.50 million for the six months ending Dec 31, 2023. 

Nickel Price Still Down, but Could Change

Nickel isn't your ordinary mineral; it's indispensable in manufacturing high-capacity batteries, stainless steel, and various advanced alloys. Alongside a plethora of challenging-to-extract and costly-to-process materials, such as rare earth elements, nickel occupies a pivotal position in modern electronics and high-performance technology. 

Low-grade nickel is a raw material for stainless steel, while the high-end variety sees use in products like vehicle batteries, etc. For the West, where countries continue to focus more on "clean" sourced raw materials, Indonesian nickel makes it difficult to get the required supply for EVs. Not only is Indonesian nickel problematic, but the oversupply continues to make other mines around the world nonviable. Even in the U.S., a dependable source of nickel beyond Indonesia remains elusive. 

The world recently saw a significant slump in the nickel price. Nickel prices fell over two-thirds from a high of U.S. $50,000 per metric ton in 2022 to about U.S. $16,500 several days ago. Meanwhile, a recent Reuters report says traders and analysts believe both China and Indonesia plan to decrease nickel production by at least 100,000 metric tons this year. This move comes as producers aim to mitigate losses following the decline in the global nickel price.

By Sohrab Darabshaw

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