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Nickel wars: Indonesia’s dominance sparks global miner struggles

Indonesia, the world’s largest nickel producer, is making waves in the global nickel market, flooding it with an abundance of low-cost supplies. This surge in nickel production is forcing competitors to shutter unprofitable mines and is causing concerns in Western capitals about China’s growing dominance over this strategically critical resource.

In the past year, Indonesia expanded its nickel production by an impressive 30 percent, reaching 1.9 million tonnes. Remarkably, this increase occurred even though global demand for nickel, a vital component in electric car batteries and stainless steel, barely saw any significant growth, according to investment bank Macquarie.

This aggressive push by Indonesia has resulted in a significant boost in its market share, rising from a mere 16 percent in 2017 to a commanding 55 percent in the previous year. However, this substantial increase in output has also contributed to a sharp 43 percent drop in the global nickel price over the past year.

Traders and analysts are now apprehensive that Indonesia’s stranglehold on global supply will only intensify as the depressed nickel prices compel producers elsewhere to close unviable mines and halt new developments. Jim Lennon, a seasoned nickel market analyst at Macquarie, remarked, “If we see a lot of non-Indonesia projects go to the wall, then Indonesia’s share goes even higher. At the moment, there is no alternative. There is no big source being developed or approved elsewhere.”

Chinese companies, foreseeing the importance of nickel in stainless steel and electric vehicle battery production, made substantial investments in Indonesian nickel to secure cost-effective inputs. Yet, while demand from China for consumer and industrial use has tapered off due to a tepid economic recovery and a shift towards lower-cost batteries, nickel’s supply surged, leading to an oversupply situation. Last year’s nickel demand was primarily driven by the steel industry.

The confluence of increased supply and diminished demand has resulted in the London Metal Exchange (LME) nickel price plummeting to approximately $16,500 per tonne in the past year, rendering more than half of global nickel production uneconomical, according to Lennon.

Nickel producers in Western Australia, a major global production hub, have faced a challenging January. Andrew Forrest’s Wyloo Metals announced the closure of its nickel mines in the region, while BHP hinted at evaluating options for its Nickel West operations. Meanwhile, Australian miner IGO is contemplating writing off the value of the Cosmos nickel mine, acquired just 18 months ago, and First Quantum is suspending mining at its Ravensthorpe site for two years.

The possible closure of unprofitable mines has raised concerns in Western capitals about an overreliance on Indonesia for supply. Chinese entities control the majority of mines, processing sites, and supply agreements in Indonesia, exacerbating these concerns. China’s technological advantage in nickel processing, conversion technology, steelmaking, and battery production further strengthens its grip on the market, making it challenging for potential buyers from other regions to compete.

Ashley Zumwalt-Forbes, deputy director for batteries and critical materials at the US Department of Energy, expressed on social media that Indonesian and Chinese dominance in the nickel market posed an “extreme threat” to national and international security, as well as the environment.

“It’s Darwinian today. People have to die,” remarked one nickel trader. Western governments are faced with the dilemma of either subsidizing loss-making operations, incentivizing low-cost operations in Indonesia and other regions, or relying on Chinese sources. All these options present challenges, and governments are still grappling with the best course of action.

Australian Resources Minister Madeleine King has called for buyers to pay a premium for more sustainable nickel to level the playing field for its producers in comparison to Indonesia.

In recent weeks, French government delegations have visited New Caledonia, a once-prominent nickel production hub. They are deliberating how much support to extend to the French Pacific island territory’s three major mine operators, as each has pledged to discontinue funding unprofitable operations.

Despite thinning profit margins for local producers, a senior Indonesian nickel executive expressed hope that they could weather the downturn longer than their global competitors due to their low production costs. Consequently, analysts predict more hardships ahead for nickel producers outside of Indonesia, with no definitive signs of a market bottom.