BHP to close Australian nickel business as oversupply hits market

BHP to close Australian nickel business as oversupply hits market

BHP Group Ltd. to close its loss-making nickel business in Australia at least until early 2027, after a global glut of the metal wreaked havoc on the market.

The company will put its Nickel West business on “care and maintenance” from October due to low prices for the metal used in electric vehicle batteries, said in a statement on Thursday. It will also halt development of its West Musgrave nickel mine.

BHP plans to spend AU$450 million (US$304 million) a year to support a possible restart if market conditions and the outlook for nickel improve.

Nickel prices have plummeted in recent years as new low-cost production from Indonesia floods the global market. Benchmark futures on the London Metal Exchange have fallen around 20% since hitting a peak in May, when several mine closures triggered a rallyNickel on the London Metal Exchange was trading at around $16,960 a tonne on Thursday.

The general fall in prices has hurt the outlook for established producers. Anglo American is considering selling or closing its nickel unit, while Glencore has decided to stop its operations in the islands of New Caledonia.

Traditionally, nickel has been divided into two categories: low-grade for making stainless steel and high-grade for batteries. A huge expansion of low-grade nickel production in Indonesia created a surplus and, crucially, innovations in processing allowed that surplus to be refined into a high-quality product.

This radically changed the views held by many in the industry on the commodity. BHP had previously sought to make nickel a key pillar of its move away from fossil fuels.

Market outlook

BHP and other Australian producers have historically been important suppliers of the refined forms of nickel that support prices on the London Metal Exchange. The country accounted for 72% of nickel in the exchange’s storage network in January 2023.

By June this year, that share had fallen 29%, thanks to a steady stream of Russian and Chinese metal deliveries that helped drive a 45% drop in prices over that period.The market is now bracing for a new wave of deliveries from newly built metal refineries in Indonesia that could push prices even lower.

BHP said on Thursday it has a constructive view on nickel beyond 2030 as demand continues to grow, although it will need to see a sustainable deficit in the market before restarting operations.

The suspension comes after BHP announced in February a US$3.5 billion write-down of the Nickel West asset and launched a strategic reviewBHP’s Australian nickel business includes open-pit and underground mines, concentrators and a smelter in Kalgoorlie. It also includes a refinery in Kwinana as well as the West Musgrave project it inherited when it bought Oz Minerals Ltd. last year.