Australia classifies nickel as a ‘critical’ mineral to protect ailing industry

The Australian government has added nickel to a list of commodities eligible for support from a A$6bn (US$3.9bn) stimulus fund, extending a lifeline to the ailing industry as falling prices hit producers of the mineral critical to electric vehicle batteries.

Canberra’s intervention on Friday underlines mounting concern from global governments that a glut of low-cost nickel from Indonesia, where the industry is dominated by Chinese producers, is forcing mines to close and reducing self-sufficiency in supply chains for growing low-carbon industries.

Australia’s nickel industry in particular has been hit by the influx of Indonesian nickel supply and falling demand for EVs. Prices of the mineral have collapsed 43 per cent over the past year, putting thousands of jobs at risk in Australia as miners including IGO, First Quantum and Andrew Forrest-backed Wyloo have pulled back investment or suspended operations.

BHP sounded the starkest warning this week, saying it would take a A$5.4bn impairment charge on its Nickel West division and could suspend operations at a unit that employs more than 3,000 people in Western Australia.

The Australian government’s classification of nickel as a “critical mineral” will make companies eligible to access the A$6bn facility, which offers low-interest loans and grants to support industry.

Madeleine King, Australia’s resources minister, said the government needed to be “proactive” in supporting nickel producers. “The international nickel price is forecast to stay relatively low through 2024, and likely for several years to come until the surplus of nickel in the market is corrected,” she added.

King this month urged buyers to pay a premium for more sustainable nickel to level the playing field with Indonesia, where a ban on nickel ore exports in 2019 has prompted a flood of Chinese investment in onshore processing, undercutting higher-cost Australian producers.

Shares in large mining groups welcomed the news on Friday, with IGO, a nickel and lithium miner, rising 9 per cent and BHP up 1 per cent.

Glyn Lawcock, an analyst at Barrenjoey, said nickel companies would move “to the front of the queue” for the fund’s non-recourse loans and grants, but that more support may be needed to sustain the viability of the industry.

Australia, with the backing of the US, has high hopes of developing an alternative supply chain to China, and has provided support for rare earths and cobalt projects as part of its critical minerals strategy.

But the crisis facing the nickel industry has threatened those ambitions. The Western Australian government said it was considering royalty relief to help the industry survive.

The BHP warning has prompted concern that nickel mining, a strategic sector in Australia since a boom in the 1970s, may be on the verge of collapse.

Lawcock said, however, that the metal had always been a “feast to famine” industry characterised by volatile prices, and could recover. “When the music stops you think it’s never going to start again.”