Australian Nickel Giants Struggle Against Indonesia's Supply Dominance

Australia's high-priced nickel mining sector, dominated by the firm BHP, faces constraints due to Indonesia's dominance in the supply arena. Additionally, transformative developments moving away from nickel use in batteries have triggered a substantial 40 percent price decrease over the past year, stabilizing around $16,000 per ton.

An uptick in nickel supply from Indonesian producers has triggered their Australian counterparts to succumb to low prices that analysts anticipate will influence the market strategy of the world's leading nickel miner, BHP Group, according to a Reuters report.

BHP brokered a supply deal with Tesla in 2021, pitching Australia's endowed geological resources alongside its robust financial and environmental regulatory policies.

Indonesia's emergence as a supply heavyweight has put a chokehold on Australian miners, coupled with innovations shifting from nickel usage in batteries, which has caused a 40 percent price fall over the last year, settling at approximately $16,000 per ton.

"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," UBS analyst Lachlan Shaw told reporters.

BHP has invested significantly in nickel sulfide deposits in countries with minimal risk, anticipating a premium for the extraction process compared to laterite deposits in Indonesia.

Despite BHP's approach, Wyloo Metals, which acquired the nickel mining company Mincor for $504 million, is reportedly staying optimistic about the long-term prospects of Australian nickel. Wyloo's CEO, Luca Giacovazzi, advocates for a transparent pricing mechanism distinguishing between environmentally friendly and less sustainable nickel, asserting the need for consumers to have confidence in the environmental benefits of electric cars.

However, weak nickel prices have compelled high-priced Australian producers to declare massive restructuring and devaluations, with First Quantum in Canada scaling down output recently.

BHP's earnings dwindled last year, falling 61 percent from 2022 to $164 million. At the company's Western Australia branch, it is contemplating refurbishing the smelter and expanding the mine while trying to develop another mine it inherited by acquiring a sister company.

"We are working hard to remain globally competitive in a very tough operating environment. Costs have risen sharply and continue to go up while prices have fallen as new supply comes into the market," BHP Nickel West Asset President Jessica Farrell told reporters.

The metal is famed as a critical component for electric vehicle (EV) batteries that boosts a car's energy density, covering longer mileage per charge.

However, nickel's advantageous characteristics extend beyond its lower weight and space-efficient properties in EV batteries. With a recyclable nature, nickel can undergo multiple reuse cycles without compromising quality. In fact, a significant 68 percent of the nickel used in various consumer products today comes from recycled sources, showcasing its sustainability.