Nickel shift will demand more bilateral thinking

Staff reporter

Strategically important, maybe, but not imperative. And largely uncompetitive. That’s pretty much how Moody’s sums up domestic supply of the latest addition to Australia’s critical minerals list, nickel.

“The exponential rise in supply from Indonesia represents a structural shift in the global nickel market,” the global credit ratings agency says.

“This means many non-Indonesian nickel producers will be unable to remain cost-competitive absent external factors such as government support.”

That’s the same message that came out of a Singapore commodities forum last November, which heard Indonesia accounted for about 40% of global nickel supply and that would be more like 60% in the second half of this decade.

The event heard that ignoring Indonesian nickel was akin to ignoring oil out of the Middle East in the 1920s.

And Philippines nickel output was growing.

Moody’s analysts said in a note this week: “A ramp-up in nickel production in Indonesia is primarily behind the jump in global nickel supply. Indonesian refineries are increasingly producing higher-grade nickel that is suitable for electric vehicle (EV) battery materials.

“Several nickel refinery joint ventures between Indonesian and Chinese firms are scheduled to commence operations in Indonesia by 2024-25, which will further increase supply.

“Absent an improvement in demand, pressure on nickel prices will continue to build.

“Rising operating costs over the past few years make it difficult for some producers, particularly those in Australia and New Caledonia, to generate profit and positive cash flows.

“Nickel projects in these jurisdictions generally have higher operating costs than those in Indonesia, where raw material, energy and labour costs are lower.”

Diversified major BHP is curtailing nickel output in Australia, where others have put projects on hold.

Glencore has done the same at Koniambo in New Caledonia and has its stake in the loss-making operation up for sale.

Moody’s makes the salient point that nickel contributed less than 1% of BHP’s FY23 EBITDA and about 4% of Glencore’s 2022 EBITDA. In other words, management won’t be losing a lot of sleep.

Moody’s has meanwhile lowered its 2024 price assumption for nickel from US$9/lb to $7/lb.

It says nickel operators in Indonesia remain in a favourable position to “navigate industry challenges, thanks to their lower operating costs and supportive government regulations”.


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