Macquarie flags nickel deficit as Indonesian permit delays drag growth

The global nickel market risks a surprise deficit this year amid slowing processing timelines for new Indonesian nickel mine permits, the Macquarie Group said in a report Thursday.

This bottleneck threatens the growth of local production, which must sustain a minimum increase of 13% to avoid market imbalance. Consequently, the investment bank has adjusted its 2024 surplus estimates downward to below 40,000 tonnes from the 100,000 tonnes previously forecasted.

“This is a major change from our recent forecasts,” said analyst Jim Lennon in the bank’s latest ‘Commodities Comment,’ adding the potential remains for supply growth to re-accelerate if prices maintain their current rebound. “It looks increasingly likely that we have seen the low point for prices in this cycle,” he wrote.

Macquarie warns that Indonesia’s nickel growth momentum is at risk if the national government fails to accelerate the mining approval process. According to the bank’s analysts, the effects of such delays have already been felt, with nickel prices experiencing a 10% surge last month due to these administrative hurdles.

Over the past year, an increase in supply from Indonesia has cratered prices, as the southeast Asian nation successfully boosted production of refined and semi-refined nickel, mainly on the back of an export ban on raw ore, which led to massive investment from China in new processing plants.

The global benchmark nickel price on the London Metal Exchange (LME) ended at US$17,432 per tonne on Friday, up 10% from the low so far this year of US$15,850 on Feb. 7. That low was the weakest price since April 2021, and LME nickel has been in a sustained downtrend since reaching US$33,575 a tonne on Dec. 8, 2022.

Sino-Indonesian team-up

Bank of America (BofA) adds further insight in its Feb. 27 ‘Global Metals Weekly’ report, arguing that China’s evolving role in the nickel market adds another layer of complexity to the narrative.

Traditionally a net importer, China is on the cusp of becoming a net exporter of refined nickel when barely three years ago, its refined nickel imports accounted for 14% of total global supply, BofA report author and commodities strategist Michael Widmer wrote.

“Indonesia has come a long way from exporting low-value-added nickel ores. However, it is not done yet with its ‘downstreaming’ industrial policy and has an eye on the electric vehicle battery industry,” Widmer said.

Indonesia has become the dominant nickel producer, accounting for 55% of global supply, up from 7% in 2015, according to BofA data.

This large expansion has been heavily influenced by investment in industrial parks. Highlighting strong government interest, the fist in Indonesia, Morowali Industrial Park was signed off at a 2013 summit between China’s President Xi Jinping, and Susilo Bambang Yudhoyono, the then President of Indonesia. The subsequent larger Weda Bay Industrial Park is now ramping up production, bringing the largest nickel mine globally to the market. 

“Unless China and Indonesia decide to cut supply, fundamentals on the nickel market will most likely remain weak,” he said.

This shift is primarily due to the Sino-Indonesian collaboration flooding the market with nickel, leading to a 45% collapse in benchmark nickel prices last year.

But the ramifications of low nickel prices extend beyond Asia. Western nations, recognizing the strategic importance of nickel, particularly for green technologies, are rallying to support their domestic industries. Australia, for instance, has placed nickel on its critical materials list, providing its producers with much-needed financial assistance.

Down and out Down Under

The low nickel prices have walloped Australian nickel producers. As a result, Wyloo Metals, a privately-held mining company owned by Australian billionaire Andrew Forrest, said in mid-January it would put the Western Australia-based Cassini, Long, and Durkin nickel mines into care and maintenance mode.

BHP (ASX: BHP) in January revealed plans to switch its Kambalda concentrator in Western Australia to care and maintenance by June. Further, it plans to place its Nickel West operations into care and maintenance.

Consequently, an impairment of about US$2.5 billion will be recognized for its Nickel West operations and the West Musgrave project. “This is an uncertain time for the Western Australia nickel industry, and we are taking action to address the current market conditions,” BHP CEO Mike Henry said in a release at the time.

Similarly, the EU and the U.S. are exploring various strategies to diversify their nickel supply sources and reduce dependency on the Sino-Indonesian axis.