ANALYSIS: Difficult Future Ahead After BHP’s Nickel Shutdown

The company logo adorns the side of the BHP global headquarters in Melbourne, Australia, on Feb. 21, 2023. William West/AFP via Getty Images

Analysis

BHP has announced it’s mothballing its WA nickel mines and processing plant for at least three years, citing an “oversupply in the global nickel market.”

But that masks a far bigger issue from which the mining giant is unlikely to recover: fierce competition from Indonesia, which has flooded the market with lower-grade metal and, as a result, has gone from accounting for about 6 percent of the world’s nickel to 53 percent currently.

And that’s not likely to change because Indonesian and Filipino producers—in partnership with Chinese steelmakers—have developed new processing technology that allows them to supply the market at a price 30 percent less than Australia’s.

So while the World Bank (and other forecasters) predict the commodity’s price will rise by 6 percent in 2025—though not to previous levels—that price differential will continue to make BHP’s product uncompetitive.

Another factor affecting demand is the fall-off in sales of electric vehicles, whose batteries use nickel, leading Tesla to cut 10 percent of its workforce in April.

“Like others in the Australian nickel sector, we have not been able to overcome the substantial economic challenges driven by a global oversupply of nickel,” the president of BHP’s Australian operations, Geraldine Slattery, said.

On July 11, the company said it was expected to post an underlying EBITDA loss of $450 million (US$300 million) in the 2024 financial year from its WA Nickel business and a non-cash impairment charge of US$0.3 billion.

Encouraged by the initial boom in EV sales, the company invested $4.4 billion (US$3 billion) in the 2020 financial year in retooling its nickel operations to serve that market. Since then, it has reported negative cash flow at Nickel West every year.

Suspension Will Affect 1,600 Workers and Contractors

The suspension of operations—which cover the Kwinana nickel refinery in Perth, the Kalgoorlie smelter, its major mines at Mt. Keith and Leinster, and the West Musgraves project in the Goldfields—will begin in October.

This will impact not only 1,600 workers but also many contractors and suppliers who service the mining sector.

The decision wasn’t a shock, as the miner announced earlier this year that its Nickel West operations were under review and warned of a potential suspension due to falling market prices.

BHP’s WA Nickel Assets President Jessica Farrell pledged on July 11 that “anyone in our frontline that wants a job with BHP has a job with BHP,” indicating that staff would be redeployed.

However, some redundancies are also expected to occur.

The company will set up a $20 million community fund to support the towns affected by the closures.

It will invest around $450 million a year to enable the facilities to be restarted in the future. It will review the situation in February 2027, though Ms. Farrell said the company expects “oversupply persisting into the latter part of this decade.”

Western Australian Premier Roger Cook said the state government would “do whatever it takes to support those workers and our regional communities through this difficult time.”

Federal Minister Calls Decision ‘Disappointing’

Federal Resources Minister Madeleine King called the decision “disappointing” and said it had worked with BHP and the broader nickel sector on policy responses to support ongoing production.

“We added nickel to the critical minerals list in February, making nickel projects eligible for consideration under the $4 billion critical minerals facility. We also announced the critical minerals production tax incentive in the May Budget,” she said.

“However, it is clear that the scale of commercial difficulties Nickel West faces due to developments in global nickel markets has led to the temporary suspension announced by BHP today.”

The decision means Australia’s nickel operations will shrink to Nova operations and Glencore’s Murrin Murrin mine, reducing production in Australia from over 150,000 tonnes last year to around 60,000 tonnes.

BHP shares were down 0.94 percent to $43.15 in early trading on the ASX on July 12, and they have fallen 2.16 percent over the last 12 months.

Recovery May Be Difficult

Many smaller nickel miners have already been forced out of business by competition from Indonesia.

First Quantum and POSCO’s Ravensthorpe, Wyloo’s Kambalda operations, Panoramic’s Savannah and the Avebury mine in Tasmania have all closed, while IGO is running its Forrestania mines towards the end of their lives, and has paused construction of its subsequent significant nickel development, Odysseus.

Nickel prices since the 1960s. Data source: World Bank. Rex Widerstrom/The Epoch Times

The commodity’s price has fluctuated substantially, depending on global market conditions.

Following the collapse of the Soviet Union, nickel exports increased dramatically, dropping the price to below production costs in the mid-1990s and forcing producers to curtail their output.

Prices then increased again, up to US$52,179 per metric ton in May 2007.