Australian nickel miners losing global market share want a government strategy for downstream processing, which is being threatened by cheap Indonesian supply flooding the market.

Australia, which has the third-largest deposits of nickel, steadily increased production from 149,800 metric tons in 2021 to 171,200 metric tons in 2023. However, its share of global output has fallen from 5.5% to 4.8% over that time, according to S&P Global Market Intelligence data, amid surging Indonesian supply.

Following a swath of mine closures, including Down Under, a report this month from the Chamber of Minerals and Energy of Western Australia (CME) warned that losses in Australia's nickel industry would put at risk nearly 10,000 jobs and the A$1.8 billion of economic activity that the sector generated in fiscal 2023.

Chinese and Indonesian producers using high-temperature furnaces to produce refined nickel matte from unrefined nickel pig iron (NPI) at significantly cheaper costs has also put Australia at a 28% cost disadvantage, CME's report said. This also jeopardizes Australia's ambitions of building a domestic battery manufacturing sector.

Nickel prices have fallen 51% since January 2022, but production costs for Australian miners have increased 49% since 2019. Australian mining wages have risen about 21% since 2014, during which time the share of labor in nickel producers' overall production costs has increased from 35% to nearly 40%, according to CME's report.

"The issue now for the nickel industry is that Chinese and Indonesian nickel pig iron might well be the benchmark for all other nickel pricing. It's the biggest factor now in the nickel market," Gavin Wendt, founding director of research firm MineLife, told S&P Global Commodity Insights.

While "all commodities go through cycles, we are seeing a step change in what's occurring internationally in the moment in nickel, so we want to ensure we get in front of that," CME CEO Rebecca Tomkinson told Commodity Insights.

"There needs to be a clear plan from [federal] government for an over-riding strategy or roadmap for downstream processing of critical minerals and rare earths ... to set us up for success, to take advantage of this opportunity and not penalize us and leave us behind in that global race," Tomkinson said. Miners also told government about "the criticality of the timing, as we need to take action now," Tomkinson said.

A spokesperson for federal resources minister Madeleine King confirmed to Commodity Insights that King discussed support for nickel miners with Western Australia Premier Roger Cook on Feb. 8 but would not comment on CME's call for a downstream strategy.

'Nickel is not dead'

"Nickel is not dead," Paul Kopejtka, CEO of Alliance Nickel Ltd., told Commodity Insights. "There's enough evidence that we have hit a floor, as there is an incentive now for Indonesian nickel to see the price rise. Automakers are thinking 10 years down the road and will continue to invest to ensure long-term supply of Inflation Reduction Act-compliant nickel."

Indonesian producer PT Merdeka Battery Materials Tbk's nickel pig iron-into-matte for the fourth quarter of its fiscal 2024 was nearly breakeven at $17 per metric ton, which "implies Indonesian higher-cost producers' margins could be negative amid a weak nickel price," UBS said in a Feb. 8 note.

The 29 nickel projects to have reported production losses since mid-2023 are mostly not in Indonesia, but UBS flagged an "emerging risk" of production loss in the Asian country this year.

Limits to nickel price downside

Prices, funding issues, ore supply constraint and geopolitical issues will lead to more supply cuts, which "may limit nickel price downside in the near term. Resumed industry activity post the Chinese New Year could also provide near-term support to the nickel price," UBS said.

"We have seen some supply response. There has been a curtailment of other higher-cost NPI producers and also stainless steel production out of Indonesia. The government has strongly enunciated that there will be no further [NPI] capacity approved," Nickel Industries Ltd. Managing Director Justin Werner said on a Jan. 30 quarterly results call.

While Indonesia barred deep-sea tailings disposal in 2021, fixing lingering environmental concerns will also affect their project costs.

"Tailings dams in Indonesia are big, capital-intensive beasts because of the rainfall in the tropics. So the battery supply chain's ESG standards will effectively reset the cost base of Indonesia's nickel production," said Kopejtka, who formerly worked as a chemical engineer on gold and base metals projects in Indonesia.

There are also "green shoots appearing," Kopejtka said, citing the nonbinding term sheet his company signed Feb. 8 with South Korean battery- and electric-material maker Samsung SDI Co. Ltd., which is building two gigafactories in Indiana with Alliance Nickel's cornerstone investor, Dutch automaker Stellantis NV.