An influx of cheap nickel from Indonesia has decimated Western Australia’s once-thriving nickel industry. The sector, which has been a staple of Australia’s mining economy, now faces an unprecedented downturn.
Nickel Prices and Industry Collapse
Nickel prices halved in 2023, falling below $16,000 per tonne in December as global surpluses widened. Indonesia, which accounted for 49% of global nickel production in 2023, up from less than 5% eight years ago, has flooded the market with low-cost supply, crippling Australian producers.
ASX 200 producer IGO paid A$1.1 billion for Western Areas in mid-2022, only to write off the entire value and suspend the Cosmos development project 18 months later, resulting in 400 job losses. Similarly, Wyloo Resources, which paid A$760 million for Kambalda producer Mincor Resources, suspended operations just seven months after acquisition.
In February, BHP took a non-cash $3.5 billion impairment charge on its Nickel West division and reported a negative EBITDA of $200 million. This triggered a review of Nickel West’s future, culminating in Thursday’s announcement to temporarily suspend the division starting October. This suspension affects the Kwinana refinery, Kalgoorlie smelter, Mt Keith and Leinster mines, and the West Musgrave development, resulting in over 3,000 job losses.
Parirenyatwa Hospital in WA’s southwest, Savannah mine, and Avebury mine in Tasmania have also suspended operations following the collapse of their owners, Panoramic Resources and Mallee Resources, respectively.
Economic and Community Impact
The Australian government’s Office of the Chief Economist had forecasted a sharp decline in nickel exports from 161,000 tonnes in 2023 to just 62,000 tonnes in 2026. The economic fallout is severe, affecting thousands of workers and local communities dependent on mining operations.
Kalgoorlie-Boulder, the largest town in the WA Goldfields, with a population of just under 30,000, faces significant economic challenges. Kambalda and Leinster, smaller mining towns, are also hit hard. Wiluna, with a population of just 240, is deeply concerned about the long-term impacts.
BHP has established a A$20 million community fund, though many believe this will not be sufficient to mitigate the economic damage. Nickel West’s president, Jessica Farrell, expressed hope that the town of Leinster could be used for workers supporting the care and maintenance process during the suspension.
The nickel market is expected to remain in surplus until later this decade. BHP President Australia Geraldine Slattery said that multiple options for Nickel West, including partial curtailment, were considered but ultimately deemed unviable due to the market outlook.
BHP plans to invest around $300 million per year to support a potential restart by 2027. However, this restart will require significant capital, competing with other large projects within BHP’s portfolio.
Despite the downturn, the rise of electrification has changed the outlook for nickel. Nickel West had built a nickel sulphate plant with Tesla as its foundation customer, but even this could not offset the financial losses.
Political and Industry Reactions
WA Premier Roger Cook and Federal Resources Minister Madeleine King have closely monitored the situation. Cook expressed disappointment in BHP’s decision, while King acknowledged that market conditions were beyond BHP’s control. Both pledged support for the affected workers and communities.
The suspension of Nickel West will also impact contractors and suppliers. GR Engineering Services and Alliance Aviation Services are among those expecting significant revenue impacts.
As Australia’s nickel industry faces its darkest days, the dominance of Indonesian nickel in the global market appears unchallenged, leaving Australia to reassess its future in this critical sector.
Source: Mining.com
