Western Australia’s government has pledged a nickel financial assistance program to embattled nickel producers, providing a 50% royalty rebate over an 18-month period with prices below US$20,000/t, which will be repayable over 24 months.

The move comes at a time when Australia’s nickel sector grapples with the low price environment that has intensified over the past few months. A few days earlier, Federal Resources Minister Madeleine King added nickel to the country’s critical minerals list, providing access to financing under Australia’s A$4Bn (US$2.7Bn) Critical Minerals Facility. 

A recent announcement from BHP that it was mulling the closure of its entire Australian Nickel West operations, due to the challenging operating environment, appears to have fast tracked these recent developments. Nickel West’s operations employ approximately 3,300 workers and the company has already suspended part of its Kambalda concentrator from June owing to a lack of ore supply. BHP announced it will recognise a non-cash pre-tax impairment charge of approximately US$3.5Bn against the carrying value of Western Australia Nickel. At the same time, BHP is also assessing the phasing and capital spend for the development of its West Musgrave project, which it acquired from OZ Minerals last year. 

Australia is a key producer of nickel, with the majority coming from sulphide ores. According to Project Blue estimates, Australia is the fifth-largest producer of mined nickel and seventh-largest of refined nickel production globally. Other Australian producers including Wyloo, First Quantum, IGO and Panoramic Resources have either reduced production or suspended operations altogether in response to low prices initiated by a wave of Indonesian nickel units entering the market. 

There is a risk that government support measures represent only temporary relief to a sector that ultimately requires much larger scale restructuring in the face of increasing competition from lower-cost Indonesian production. Over the next couple of years, nickel prices look set to continue to be weighed down by the large surplus, with more production cuts and a meaningful recovery to demand necessary to return the market closer to balance.