Nickel miners have started closing operations and curtailing production, citing low prices in a market awash with Indonesian supply.

Analysts expect ongoing market weakness to force more producers to follow suit amid projections of multiyear supply surpluses. Strong output from Indonesian mines, a key source of the nickel pig iron that is used in steelmaking, is weighing on prices and shrinking margins, experts say.

Beleaguered miner First Quantum Minerals Ltd. announced Jan. 15 that it would suspend mining at Ravensthorpe and only process stockpiles. Likewise, cash-strapped Panoramic Resources Ltd. announced Jan. 8 that it would suspend operations at the Savannah mine. Both nickel mining operations are in Australia.

"Given that nickel prices have sunk into the global production cost curve, it is likely that the market could be hit by further mine supply cuts following the suspension of mining operations at Ravensthorpe," said Jason Sappor, a senior metals and mining analyst at S&P Global Commodity Insights. "This may provide some support to prices."

Pricing pain

London Metal Exchange nickel prices plummeted 41.2% year over year to $15,901 per metric ton as of Jan. 16, compared to $27,027/t on Jan. 16, 2023, according to S&P Global Market Intelligence data. Meanwhile, warehouse stocks have climbed. London Metal Exchange warehouse stocks totaled 69,510 metric tons on Jan. 16, jumping 88.8% from a 2023 low of 36,810 metric tons on June 16, according to Market Intelligence data.

Commodity Insights projects annual nickel supply surpluses out to 2027 and estimates there will be a surplus of 240,000 metric tons in 2024.

"The LME three-month nickel price dropped by roughly 45% in 2023 under downward pressure from excess supply, with global primary nickel output growth outpacing demand growth for the second consecutive year due to expanding supply from top producers Indonesia and China," Sappor said.

Combined London Metal Exchange and Shanghai nickel inventories have more than doubled since 2023 lows and have climbed 5,351 metric tons a week on average over the past four weeks, John Tumazos, a mining analyst with Very Independent Research, said.

"Too many nickel mines have been built," Tumazos said.

Panoramic Resources decided to shutter the Savannah mine after a failed strategic review in November 2023. On the back of low nickel prices, Panoramic announced in mid-December 2023 that it would restructure under voluntary administration.

Similarly, First Quantum's FQM Australia Nickel Pty Ltd. unit said in a Jan. 15 news release that the company would reap "significant mining and processing cost reductions" at Ravensthorpe by only tapping stockpiles as part of a three-year plan.

"The three-year plan represents the anticipated period for weaker nickel prices," the First Quantum subsidiary said.

First Quantum referred Commodity Insights to press releases when asked for further comment. Panoramic could not be reached for comment.

The new processing plan at Ravensthorpe will cut forecast output to about 12,000-17,000 metric tons of nickel in 2024, down from a forecast of 24,000-29,000 metric tons as of Jan. 16, 2023, according to First Quantum.

"More closures of higher-cost capacity are likely in our view," Scotiabank analysts said in a Jan. 15 note. "We forecast the nickel market to remain in meaningful surplus over the next several years due to the relentless growth of Indonesian [nickel pig iron] production, which is anticipated to more than offset very strong consumption."

Nickel is used in steel alloys as well as other products including electric vehicle batteries, where demand is growing due to the energy transition.

On defense

Meanwhile, other miners have also started buttressing themselves against weak nickel markets.

Mining giant Glencore PLC said in late September 2023 that it would stop funding its 49%-owned Koniambo nickel mine in New Caledonia at the end of February, noting that $9 billion had been spent since the project's start. Societe Miniere du Sud Pacifique SA owns 51% of the mine. It is not clear if the move will have an impact on output.

Glencore, one of the largest nickel producers in the world, declined to comment on the potential production impact of the funding decision.

Likewise, BHP Group Ltd. said in a Jan. 18 production update that it was mulling options at the company's Nickel West mine in Australia to mitigate the impact of low nickel prices.

"The nickel industry is undergoing a number of structural changes and is at a cyclical low in realized pricing. Nickel West is not immune to these challenges," BHP said in the update.

Also suffering from low metal prices, nickel miner Sherritt International Corp. on Jan. 15 announced "organization-wide cost cutting" measures, including corporate restructuring that will decrease the company's Canadian workforce by about 10%. Sherritt expects to save $9.6 million per year with fewer salaries and benefits to pay.

Analysts cast nickel as a particularly tough market for miners, given rising supply and abundant recycling.

Peter Arden, managing director of mining research consultancy Groundwork Pty. Ltd., also expects more nickel mine closures.

"While all commodities go through these phases, nickel suffers somewhat more than other metals because when prices are good, you get a lot of recycling. Then the recycling falls off as prices decline," Arden said. "The pain nickel producers experience is often quite extreme because the flat and low points can be quite prolonged, even for a few years."