Low nickel prices force BHP to take a hard look at its strategy
• Lithium iron phosphate gains ground as EV battery chemistry of choice as making LFP batteries can cost less
Australian nickel producers, hit by a sharp jump in supply by rival Indonesia, are starting to buckle under low prices that analysts expect will force a rethink by top global miner BHP Group on its nickel strategy for 2024.
The metal has long been feted as a key battery material for electric vehicles because it improves energy density so cars can run further on a single charge.
BHP has promoted nickel as core to its green strategy. It signed a deal to supply Australian nickel to Tesla in 2021, touting the country’s rich geology and strong financial and environmental regulations.
But Australia’s producers have been squeezed by Indonesia’s emergence as a supply powerhouse and on the demand side by innovations away from using nickel in batteries, which have led to a 40% price slump over the past year to about $16,000 a tonne.
“The challenges facing many nickel producers are unlikely to ease near term,” said UBS analyst Lachlan Shaw.
“We are bearish on the commodity and quite cautious on assets and producers.”
Lithium iron phosphate (LFP), which does not use nickel, has been gaining ground as the EV battery chemistry of choice, especially in China, because LFP batteries can be produced more
cheaply, making EVs more affordable.
But BHP has placed a big bet that nickel sulphide deposits in low-risk jurisdictions will attract a premium because they use less energy to extract nickel than
laterite deposits found in Indonesia. It is not alone.
Wyloo Metals, which bought nickel miner Mincor for $504m in 2023, still believes in the longterm fundamentals for Australian nickel, said CEO Luca
Giacovazzi. “The industry needs a more appropriate and transparent pricing mechanism, that distinguishes between clean and dirty nickel.
“So consumers can be confident their EV really is a better
choice for the environment,” said Giacovazzi. But for now, weak prices have forced Australia’s high cost producers to announce a swathe of writedowns and restructures, with Canada’s First Quantum the latest to cut production. Earnings tanked at BHP’s nickel business in the 2023 financial year, sliding 61% from a year earlier to just $164m.
The division accounts for less than 1% of its earnings.
“We are working hard to remain globally competitive in a very tough operating environment. Costs have risen sharply and continue to go up while prices have fallen as new supply comes into the market,” said BHP Nickel West Asset president Jessica Farrell.
She said that the company is working to “take action to address these challenges ” , without elaborating.
At its Western Australian nickel operations, BHP is assessing options for a major smelter renewal and a mine expansion while it sets out to build the West Musgrave mine that it acquired with its $6.4bn takeover of Oz Minerals.
One option for BHP could be for it to delay West Musgrave until the market recovers, said Barrenjoey analyst Glyn Lawcock.
“Clearly right now nickel is challenged,” he said. “[But] I think to write nickel off today for forever is a big call.”
Even with the growing use of LFP batteries, they will not capture 100% of the market.
As consumers go for cheaper cars, governments could mandate greener sourcing policies, he said. “It’s going to be a big decision point for BHP this year,” Lawcock said.