In recent developments within the global nickel market, there has been a notable downturn in prices. This shift has seen nickel prices plummet from their recent highs, largely due to a global oversupply. The repercussions of this trend have prompted BHP Group, one of the largest mining companies, to suspend its operations in Western Australia, reflecting the economic challenges facing the industry.
BHP Group Ltd. announced the suspension of its Nickel West operations and West Musgrave nickel project in Western Australia. This decision was made in response to the economic hurdles posed by the global oversupply of nickel. Starting from October, BHP will cease mining and processing activities at several key sites, including the Kwinana refinery, Kalgoorlie smelter, and Mt. Keith and Leinster mines. The development of West Musgrave will also be put on hold as the company initiates its care and maintenance program.
Geraldine Slattery, BHP’s Australia president, pointed to significant economic challenges driven by the oversupply of nickel as the primary reason for the suspension. BHP has projected an underlying EBITDA loss of around $300 million for its Australian nickel operations for the financial year ending June 30, 2024. Despite the suspension, BHP intends to continue supporting its workforce and local communities during this transition period. The company plans to invest approximately $300 million annually in its Western Australian nickel facilities, paving the way for a potential restart of operations. BHP will reevaluate its decision to halt operations by February 2027.
Australia’s resources minister, Madeleine King, expressed disappointment over BHP’s move, emphasizing its significant impact on the workers and communities of Kwinana, Kambalda, and Kalgoorlie. Western Australian Premier Roger Cook echoed these sentiments, noting that the decision would affect thousands of workers. Cook underscored the importance of diversifying the economy to enhance resilience in the resources sector.
The rapid growth of Indonesia’s nickel industry has played a pivotal role in shaking up the nickel market, resulting in an oversupply and subsequent price declines from the highs of 2022 and 2023. As of July 10, the London Metal Exchange (LME) cash price for nickel stood at $16,606.41 per metric ton, marking a 46.4% drop from the 2023 peak of $30,958/t on January 3, according to S&P Global Market Intelligence data. In 2022, nickel prices reached a high of $48,241/t on March 10 due to a historic short squeeze, remaining volatile and often surpassing $30,000/t. The current price reflects a 65.6% decrease from the 2022 peak.
The surplus of primary nickel limits the potential for price increases, with LME stocks hitting a two-year high on May 29 as supply growth, particularly from Indonesia and China, continues to outstrip demand, according to S&P Global Commodity Insights analyst Anna Duquiatan. While nickel prices saw an initial rise earlier this year due to protests in New Caledonia and US and UK sanctions on Russian metal, they have since declined but remain higher than at the beginning of the year.
While BHP’s decision to suspend operations at its nickel assets in Western Australia was anticipated, it represents a significant setback for the local mining industry. This suspension will result in 1,600 employees being either redeployed or offered redundancies. Despite the challenges posed by the oversupplied market, some industry players see opportunities amid the adversity.
Lunnon Metals, for instance, is eyeing the mothballed Kambalda nickel concentrator as a potential opportunity. With BHP’s suspension of Nickel West operations and the West Musgrave project amid the global nickel downturn, Lunnon is exploring alternative processing options for its Baker and Foster nickel deposits. The company is considering expanding its role in the district and sees potential in leveraging the mothballed Kambalda nickel concentrator by either purchasing, leasing, or utilizing the plant and its associated infrastructure and utilities. Additionally, Lunnon envisions the prospect of jointly or independently constructing a new concentrator in the future to cater to the needs of various local stakeholders in Kambalda or beyond.
Despite the prevailing challenges in the nickel market, Lunnon Metals remains optimistic about the future of the commodity in Australia and is forging ahead with a strategic vision. Market analysts also share this positive outlook, noting that while short-term price fluctuations are influenced by speculative activities and immediate market conditions, the long-term outlook for nickel remains favorable, primarily due to its critical role in the energy transition. The increasing demand for nickel in renewable energy technologies, electric vehicles, and energy storage solutions is expected to drive long-term demand growth for the metal.
As the nickel market contends with oversupply and declining prices, BHP’s suspension of operations marks a significant development within the industry. Nonetheless, companies like Lunnon Metals are actively exploring new avenues to navigate this challenging landscape, underscoring the sector’s resilience and adaptability.
