A worker in a protective suit pokes a metal rod to tap slag from a smelting furnace at PT Vale Indonesia's nickel processing plant in Sorowako, South Sulawesi, Indonesia, on Sept. 12, 2023.Dita Alangkara/The Associated Press
Nickel was one of the hottest commodities on the planet as recently as 2022. Analysts and mining executives then predicted blue-sky fundamentals for the critical mineral, based on the belief that demand for the electric car battery input would far outstrip global supply. But after a short-lived trading frenzy drove nickel to a record high in March, 2022, the commodity went into a steep decline. In the last year alone, nickel has tumbled almost 30 per cent to around US$17,500 a tonne.
The crash in the nickel price is putting tremendous pressure on the industry. Major mining companies such as First Quantum Minerals Ltd. FM-T, Glencore PLC GLNCY, and Wyloo Metals Pty Ltd. are closing mines, idling production and issuing bleak forecasts. Anglo American PLC recently wrote down the value of its nickel operations by US$800-million. BHP Group Ltd., the world’s biggest mining company by market value, recently estimated that about half of all nickel production globally is money-losing, as it incurred a US$2.5-billion impairment charge.
Driving the commodity price into the ground is a relentless flood of new China-controlled supply coming out of Indonesia. Since 2015, Indonesia’s share of the global nickel market has skyrocketed from 7 per cent to 55 per cent, according to data from Bank of America.
Australia, a major global nickel mining jurisdiction, is offering financial aid to try to resuscitate a crumbling industry that is vitally important to its economy. Over the next 18 months, mining companies in the state of Western Australia will be eligible to receive a 50-per-cent rebate on royalties paid, as long as the average price of the commodity trades below US$20,000 a tonne.
Western nickel companies are also waging a war of words against China and Indonesia, slamming both countries for poor environmental controls, pleading with governments and regulators to step in, and asking consumers to do their part.
Nickel supply by country
In kilotonnes
Indonesia
Philippines
New Caledonia
Russia
Canada
Australia
China
Brazil
Finland
Cuba
Others
0
500
1,000
1,500
2,000
2,500
the globe and mail, Source: BANK OF AMERICA GLOBAL RESEARCH
Nickel supply by country
In kilotonnes
Indonesia
Philippines
New Caledonia
Russia
Canada
Australia
China
Brazil
Finland
Cuba
Others
0
500
1,000
1,500
2,000
2,500
the globe and mail, Source: BANK OF AMERICA GLOBAL RESEARCH
Nickel supply by country
In kilotonnes
Indonesia
Philippines
New Caledonia
Russia
Canada
Australia
China
Brazil
Finland
Cuba
Others
0
500
1,000
1,500
2,000
2,500
the globe and mail, Source: BANK OF AMERICA GLOBAL RESEARCH
“As consumers in North America and Europe, are we going to tolerate nickel that comes from Indonesia, with the associated environmental impacts from strip mining, poor tailings disposal, and poor disposal of leach residues,” said Kristan Straub, chief executive of Wyloo Canada, which owns the undeveloped Eagle’s Nest nickel project in the Ring of Fire, a remote region in Ontario’s far north. “Are we going to tolerate that going into vehicles that are supposed to be better for the environment?”
While many Western nickel producers, such as Wyloo, are responding to the crashing commodity price by cutting production to try to arrest the price slide, China and Indonesia are doing the opposite. Both are plowing ahead and expanding production, as they concentrate on crushing the competition. For China, the strategy is about establishing dominance in yet another critical mineral, similar to what it has already achieved in lithium, cobalt and graphite.
“The Chinese and Indonesians are pushing very hard in getting additional tons of nickel to the market, and are seemingly unfazed by prices coming down,” said Michael Widmer, head of metals research with Bank of America, in an interview.
Unlike the West’s fragmented nickel supply chain, China’s industry is highly integrated, with Chinese producers owning big mines in Indonesia, refining the metal at home, or increasingly in Indonesia, and selling processed nickel to its domestic EV industry. The entire value chain is overseen and directed by the state. It’s a big picture strategy that has paid off handsomely with China’s BYD Auto Co. Ltd. recently passing Elon Musk’s Tesla as the world’s biggest maker of EVs.
“The government in China has put a lot of effort strategically into developing the supply chain that starts with mining, goes to the batteries, and then to production. If you have low commodity prices along the way, that helps with your end product,” said Mr. Widmer.
China over the past decade revolutionized the steel manufacturing process, by producing the alloy cheaply using low-grade Indonesian nickel, (nickel pig iron, or NPI), instead of the high-grade nickel found in countries such as Canada and Australia. But the Chinese, in just the past few years, also figured out how to process NPI for use in EV battery manufacturing, negating the need for reliance on traditional high-grade nickel.
Stalwart nickel producers such as BHP, which had hoped to be the “supplier of choice” to the global EV industry, quickly found themselves usurped by Indonesia and China. BHP chief executive Mike Henry doesn’t see the supply picture changing any time soon. In a February conference call with analysts, he said the glut in the market will likely continue “until the end of the decade.”
The dark side of China’s relentless rise in nickel has been the detrimental impact on the environment. Both China and Indonesia rely heavily on thermal coal for power. Already one of the dirtiest industries, steel produced using NPI is far more carbon intensive than producing the alloy using high-grade nickel. Similarly, the processing of NPI for use in the EV industry involves burning vast amounts of metallurgical coal, another major source of pollution. In addition, Indonesian regulations around mining are far looser than what Western companies are subject to.
Wyloo Canada’s Mr. Straub said that Indonesia’s environmental standards are nowhere near as stringent as they are in the West. To satisfy ESG-conscious investors, Canadian and Australia mining companies must meet a much higher bar, that includes electrifying their mining vehicle fleets, using carbon capture technology, and adopting as many renewable energy sources as possible, steps that improve the impact on the environment, but which also often drive up costs.
Mr. Straub is looking to governments to take action, possibly in the form of higher tariffs against dirtier nickel imported from Indonesia that ends up in the North American EV supply chain. That would be on top of billions of dollars’ worth of incentives already rolled out as part of the U.S. Inflation Reduction Act, which encourages car makers to source critical minerals among North America and its allies.
The Australian government has been pushing the United States and Europe to mandate car companies to show the carbon emissions associated with the production of vehicles, which would detail where various metals are sourced from and their corresponding emissions. The creation of ESG scorecards on cars would allow the public to compare the emissions generated in their production, likely influencing purchasing decisions, and putting further pressure on car makers to source nickel from cleaner sources outside Indonesia.
The tepid nickel price makes it far harder for Wyloo and other development companies to make the economic case for building new mines. As a private company, Wyloo doesn’t have to disclose the economics around Eagle’s Nest, but Mr. Straub said that even at these depressed prices, the company can still make money. Plans for the project are “full steam ahead,” he said.
While Wyloo’s Ring of Fire project isn’t expected to be in production until well into the 2030s, junior developer Canada Nickel Company Inc. hopes to have a massive nickel mine in production in northeastern Ontario by the end of 2027. But the Toronto-based junior needs to raise about $2-billion to build the Crawford project, amid one of the worst commodity environments in living memory.
The company’s feasibility study assumed a long-term nickel price average of US$21,000, which is about $3,500 a tonne higher than the current price. But even amid a much lower commodity price than anticipated, Canada Nickel CEO Mark Selby says the company isn’t facing significant headwinds in its fundraising efforts. That’s in large part because of new sources of funding that have become available to the critical minerals industry over the past few years, namely car and electric car battery makers, and the Canadian and U.S. governments, which have earmarked billions for critical minerals projects.
“We’re in great shape,” said Mr. Selby. “These two funding sources are looking well past what’s happened with nickel prices over the last 12 months.”
While development companies such as Canada Nickel have the luxury of time to wait it out for a higher commodity price environment, existing producers are facing the crash head on, and many are hurting.