Our recently published Nickel Extractive Cost Tracker offers a current and historical (2015–2023) analysis of global nickel-producing assets, comparing granular cost data. The service offers unique insights into mining and processing cost breakdowns at an asset level.

This nickel cost analysis comes at a time when demand for nickel continues to rise, largely owing to its use within lithium-ion batteries to power electric vehicles (EVs). Batteries accounted for 15% of primary nickel demand in 2023 (up from just 4% in 2017), though the market is still dominated by the stainless steel sector.

Rising demand has led to an increase in global nickel mine supply, which is increasingly dominated by Indonesia. However, this has not been without some ongoing headwinds.

Since 2017, global nickel mine supply has increased from 2.1Mt to 3.7Mt in 2023 (up 76%), with Indonesian production soaring from 0.4Mt to 2.0Mt (an increase of more than 500%) over the same period. In real terms, the growth of Indonesian supply covers more than 100% of the market increase since 2017, indicating that Indonesian miners’ low-cost extraction of laterite ores is pricing out competitors as Indonesian miners secure further market share.

Nickel costs and a homogenising market: only one winner

Nickel is mined from either sulphide or laterite deposits. In 2023, laterite ore comprised 82% of the total mined nickel supply, largely extracted in Indonesia, the Philippines, and New Caledonia. Sulphide ores, on the other hand, are largely mined in Russia, Canada, and Australia.

In 2017, the proportion of global ore supply from laterite sources was 65%, with the recent increase owing to the growth of supply from Indonesia. It also reflects the form of finished nickel that has been required by the market over the past decade – nickel pig iron (NPI) for the rapidly growing Chinese stainless steel sector – which is produced from laterite ores. The analysis below highlights the impact that Indonesian costs have had on the market share of production.

The loss of supply share to Indonesia has been universal across the global market. From 2017 to 2023, Canada’s sulphide nickel supply share shrunk by 72%, China’s sulphide nickel supply share declined by 34%, and Australia’s sulphide and laterite nickel supply shares fell by 43% and 44%, respectively. Over the same period, Indonesian producers have seen a 219% increase in the country’s supply share, capturing 54% of the market in 2023.

The aforementioned Canadian sulphides recorded the highest decrease in market share from 2017 to 2023. However, production costs increased by 17% in Canada over the same period. This increase is comparatively low against the global average in which average worldwide production costs (excluding Indonesia) increased by 50%. However, higher capital costs impacted Canadian producers significantly, largely owing to geographical challenges, traditionally pricing their costs above the global average. Recently, competitors Glencore and Vale have discussed the possibility of combining their Sudbury-area nickel operations in an effort to cut costs, a direct response to low nickel prices yet high demand from the battery-electric vehicle industry.

Alternatively, Chinese producers offer an opposing market appetite where, although their costs increased above the market average at 142% between 2017 and 2023, they only lost a modest volume of the market share of supply, reducing by just 34%. However, in real terms, Chinese costs were at a lower cost position in 2017 (US$1,972/t Ni) than the industry average (US$4,752/t Ni). Since then, they have moved closer to the average, although they still lie notably below the remainder of the industry, keeping them more competitive. This trend can be attributed to China’s integrated position within the sector, from extraction to refinement, ensuring the country’s committed position within the market. This is not only confined to the nickel sector and is often observed across the wider commodities sector. It is likely also indicative of China’s greater tolerance of operating low-margin markets in order to retain market share compared with other regions.

Project Blue notes that Australian nickel miners have been some of the hardest hit by Indonesia’s expansion into nickel supply. Australian laterite operations saw costs increase by 110% from 2017 to 2023, resulting in a 44% reduction in the country’s global production market share. This is not just the result of increasing energy, reagent, and labour prices in Australia but also the high costs associated with ageing infrastructure and the required investment to maintain it. A proportion of this market share reduction is linked to the closure of the Ravensthorpe Mine in Western Australia. Production of First Quantum’s mixed hydroxide precipitate (MHP) is now limited to stockpiled feedstock while the mine remains mothballed as the company favours a shutdown amid sustained operational losses at the current price point. The story is similar for Australian sulphides, recording a market share loss of 43% from 2017 to 2023. Australian laterite and sulphide operations have similar mine cost positions, both approximately US$13,300/t Ni on average. This has led to BHP putting its Nickel West assets (Mt Keith and Leinster) under care and maintenance until 2027, blaming oversupply and low nickel prices.

Between 2015 and 2023, Indonesian costs decreased by 3.9%, and local producers increased their market share by 219%. Indonesian laterite miners and refineries have been able to benefit from a range of factors, including low energy costs, with cheap coal fuel providing the main source of energy for HPAL operations in the area, as well as low sulphuric acid costs. However, regarding mine sites, Indonesian assets benefit from low labour and diesel costs, as well as short transport distances of laterite ore to downstream facilities.

It should be noted that, in New Caledonia, production costs remained broadly the same while market share shrank by 40%. This is likely a result of political unrest, project closures, and production curtailment.

Simplifying the analysis, nickel costs have gone up, and market shares have gone down in almost all countries. The main exception to this is Indonesian nickel producers, which have marginally reduced costs while massively increasing their market share of nickel production.

Real costs (Indonesia vs the world)

In real terms, Project Blue estimates that the weighted average AISCs of laterite and sulphide producers in 2023 were approximately US$5,700/t Ni and US$7,300/t Ni, respectively. However, the cost of Indonesian laterite producers was only US$3,500/t.

In Brazil, the Santa Rita asset has seen an increase in labour, energy, and realisation costs. This is partially the result of the weakening of the Brazilian Real against the US dollar, as well as the expansion of underground mining activities at the asset. Nornickel’s Russian Kola MMC assets remain highly competitive, owing to significant copper, PGM, and palladium by-product credits.

Indonesia’s significant market share ramp-up in recent years, coupled with low-cost production, has resulted in the stifling of new production outside the country despite the existence of a small amount of cost-competitive supply in the market.

So, what happens next for the nickel sector?

With Indonesia dominating all forms of nickel production, the status quo seems unlikely to change in the short term. So, what could be a potential cost driver in the future? To consider what may impact costs next, it is best to reflect on historic events related to the Indonesian nickel market.

Indonesian ore production has been highly volatile over the past decade due to a combination of massive demand from China (importing nickel laterite for domestic NPI production) and the implementation of a series of domestic trade policies. Output collapsed in 2014 and 2015 as the export ban implemented in 2014 restricted domestic miners to supplying only the limited (at the time) domestic refining industry. After the Indonesian government relaxed the ore export ban (for ores containing <1.7% Ni) at the beginning of 2017, production surged once more. In September 2019, the government performed another U-turn by bringing forward the outright ban on nickel ore exports to incentivise investment in processing capacity, this time with a focus on targeting the EV battery supply chain.

As a result of Indonesia’s strict trade policies, over the past decade, Chinese investment in nickel downstream processing facilities in the country has been extensive. This has resulted in rapid production growth of more than 500% since 2017. As things stand, this level of Chinese investment in Indonesian nickel processing capacity may jeopardise the chances of the USA ever offering tax incentives under the Inflation Reduction Act (IRA) for this source of nickel. In addition to Indonesia’s lack of a free trade agreement (FTA) with the USA, this tax incentive will not apply where US “foreign entities of concern” (China, Russia, North Korea, and Iran) own >25% of a company that supplies critical materials for EVs or batteries. In an effort to circumvent potential demand limitations, the Indonesian government is looking to structure new nickel investment deals where Chinese companies are minority shareholders. An unwillingness to limit Chinese investment could reduce the attractiveness of nickel from Indonesia as OEMs along the supply chain look to maximise the benefits available from IRA incentives.

This scenario could create a new nickel market dynamic, generating space for other cost-competitive producers to increase their output, with limited non-Chinese-owned companies operating in Indonesia. Discussions of a US–Indonesia trade agreement may reduce the likelihood of a decline in Indonesian nickel production market share. However, during an election year, it appears that any genuine progress is unlikely in the near term. Alternatively, given the aggressive EV rollout targets of OEMs, which require huge volumes of nickel, alternative procurement choices may be limited in the immediate future, reaffirming Indonesia’s current strength in the market.

Elsewhere, current margins, driven down or inverted by the ever-increasing supply from Indonesia, create an apathetic view for other countries to produce beyond their means, especially high-cost sulphide operations. The Philippines and New Caledonia, both obvious competitors, hamper their own production as much as Indonesia controls the current price through supply. The former faced long-term, environmental-related closures in the past, limiting supply, albeit, in December 2021, prior restrictions were overturned, allowing growth to resume. However, the Philippines industry has yet to see output reach pre-2015 levels. As previously mentioned, New Caledonia continues to undergo political unrest, limiting production and forcing mine closures as pro-independence activists strive to impeach French rule. Finally, Brazilian laterite producers currently operate at a discounted cost in comparison to the market; however, this production is, for the most part, integrated into ferronickel production.

As highlighted in this review, our cost service offers a current and historic analysis across the market, giving the user a detailed breakdown of individual assets with the ability to compare and adapt the data to their needs.

Our analysis aims to showcase these features while providing insight into the current landscape of the nickel market, how our data can be used to draw coherent and structured hypotheses about supply-side dynamics, and how costs may shape the market share of production looking forward.

20

Read More