The Nickel Industry's Green Dream Turns Into a Nightmare

Nickel is one of the most important metals for the electric vehicle (EV) revolution. It is a key component of the batteries that power EVs, as well as other green technologies such as wind turbines and solar panels. Nickel is also a scarce and finite resource, with limited reserves and high environmental costs of extraction and processing.

For these reasons, many investors and analysts expected nickel to be a star performer in the commodities market, driven by strong demand from EV makers and other green industries. They also expected nickel producers to benefit from a premium for "green nickel", which is sourced from low-carbon and ethical operations.

However, the reality has been far from rosy for the nickel industry. In the past year, nickel prices have plummeted by more than 40%, reaching their lowest level since 2016. The main culprit behind this collapse is Indonesia, the world's largest producer and exporter of nickel.

Indonesia has been ramping up its nickel output in recent years, thanks to massive investments from Chinese companies and major technological breakthroughs. Indonesia has developed a new method of processing low-grade nickel ore, known as high-pressure acid leaching (HPAL), which can produce high-quality nickel suitable for batteries.

This has created a glut of nickel supply in the global market, undermining the profitability and competitiveness of other nickel producers, especially those that rely on conventional methods of mining and smelting high-grade nickel ore. Many of these producers are now struggling to survive, facing closure, bankruptcy or bailout.

One of the most prominent examples is BHP Group, the world's largest mining company and a major supplier of nickel to Tesla. BHP had invested heavily in its Nickel West operation in Australia, hoping to capitalize on the EV boom and its green credentials. However, BHP is now considering selling or shutting down Nickel West, as it cannot compete with the low-cost Indonesian nickel.

BHP is not alone in its plight. Other major nickel producers, such as Vale, Glencore and Norilsk Nickel, are also facing challenges from the Indonesian onslaught. Some smaller players, such as First Quantum Minerals and Horizonte Minerals, have already gone bust or sought state aid.

The situation is unlikely to improve anytime soon for the nickel industry outside Indonesia. Indonesia has announced plans to further expand its nickel production and exports, aiming to become a global hub for battery manufacturing. It has also imposed a ban on raw nickel ore exports since 2020, forcing other countries to buy its processed nickel instead.

Meanwhile, there is little evidence that EV makers and other green industries are willing to pay a premium for green nickel. BHP admitted last year that automakers remain happy to buy Indonesian nickel, despite its questionable environmental and social impacts. Indonesia's HPAL method is highly energy-intensive and water-polluting, while its mining activities have displaced local communities and destroyed forests.

The nickel industry's green dream has turned into a nightmare. The industry faces an existential crisis, as it cannot compete with Indonesia's cheap and abundant nickel supply. The industry also faces a reputational crisis, as it cannot claim to be part of the solution for climate change and sustainability.

The only hope for the nickel industry outside Indonesia is to find new ways to differentiate itself from its rival, by offering higher quality, lower carbon and more ethical products. This will require more innovation, collaboration and regulation in the industry, as well as more awareness and responsibility from consumers and policymakers.