Monsters of Rock: Nickel gets federal assistance and upside capped for iron ore?

Canberra has flown in its first step to save the Aussie nickel sector, placing the metal on the critical mineral list
Iron ore prices to average US$120/t in 2024: BMI
Lithium stocks surge as Albemarle brands pricing ‘unsustainable’

The Federal Government has launched the first of what is likely to be many regulatory salvo to revive Australia’s decrepit nickel industry, its hand forced after BHP (ASX:BHP) flagged the potential closure of the near six decade old Nickel West operations on Thursday.

Its tolerance for losses caused by a flood of Chinese backed supply from Indonesia has wavered with the division poised to record a US$200 million loss and US$3.5 billion ($5.4b) pre-tax impairment in the world’s biggest miner’s half year results next week.

It prompted Canberra to finally respond to years of calls for the EV metal to be placed on the critical minerals list, opening access for developers to a $4b grant facility and low cost government loans.

The move comes with the sector hoping to see royalty relief from the State Government and potentially production credits to cover the cost of downstream materials like nickel sulphate.

Due to its abundance and the breadth of its market, nickel was not placed on the critical minerals list in an update only two months ago. Commodities like lithium and rare earths are included, along with a range of more obscure metals like gallium.

Federal Resources Minister Madeleine King, who made the extraordinary decision today, said it could see companies who want to head downstream or reinvest in nickel assets like BHP’s US$750-1b rebuild of its Kalgoorlie Smelter, get access to Export Finance Australia loans.

“That enables say BHP or others; there’s IGO and others that might look at how they invest in say the Kalgoorlie smelter of BHP, which is another, I know, an important decision that’s ahead of BHP,” King said on the ABC this morning.

“So this will now make sure nickel can fall within that particular facility.

“And the other thing it does is it helps with our international partners too, that we move this to the Critical Minerals List so that we can attract some of their investment from their national financing bodies, like Export‑Import Bank, or all the ones that Japan and Korea and the US all have to help solidify these supply chains.”

King flagged that she would continue to lobby, along with American ambassador and former PM Kevin Rudd, for international buyers in the US, Canada and Europe to offer higher prices for metal mined in Australia, reflecting ESG standards regarded by local producers to exceed those of laterite nickel producers in Indonesia.

We have been here before of course

WMC shut a swathe of nickel mines in the late 1990s in Kambalda, eventually vending them to juniors to create the environment for the nickel boom of the early 2000s, which saw the emergence of Mincor Resources (ASX:MCR), Panoramic Resources (ASX:PAN) and IGO (ASX:IGO).

At one point in 2007 a remarkable run in nickel prices saw BHP make more money in Nickel West than iron ore, before a succession of crashes left the Nickel West division so undesirable BHP couldn’t even vend it into South32 (ASX:S32) .

In 2014 the business was effectively put on notice with BHP set to defund it and close down by the end of the decade, before it was revived as a test kitchen for business innovations that could be spread across the company’s core assets.

Still operating when prices hit a multi-year low of US$7600/t in early 2016, BHP returned nickel to a core focus after it became a major supplier to the growing electric vehicle battery sector.

But the latest drama in the nickel space has BHP along with the State and Federal Governments contemplating the mortality of an industry that has existed in WA in some shape or form since 1966.

It comes after Andrew Forrest’s Wyloo, a supplier to BHP’s Kambalda concentrator, announced it would close its Kambalda mines by the end of May.

IGO halted development of its Cosmos nickel mine, already subject to major write downs as part of a near total impairment of its $1.3 billion 2022 purchase of Western Areas.

Administrators for Panoramic closed the Savannah operations in the Kimberley, while First Quantum and POSCO will halt mining and trim output by a third at the Ravensthorpe laterite mine on WA’s south coast.

The Avebury mine near Zeehan in Tasmania has also been shut around 18 months after it was restarted by the collapsed Mallee Resources.

And now for something completely different

While battery metals have been falling head first in 2024, still in solid price territory are the steel complex bulks like iron ore and met coal.

BHP has both of those in spades, so don’t feel too sorry for the mining giant.

So far iron ore benchmark prices have averaged around US$129/t, even with China’s property sector in the toilet.

Fetching US$129.20/t today, there remains potential for a breakout if China really hits the gas when it comes to stimulus.

Fitch unit BMI Commodity Insights said today that was unlikely. They see iron ore averaging US$120/t, falling to US$90/t by 2028 and long term levels of US$78/t from 2033.

“We maintain our 2024 iron ore price forecast at an annual average of USD120/ tonne, as price resilience continues from positive sentiment over Mainland Chinese stimulus hopes,” BMI analysts said in a note.

“That said, continued weakness in the Chinese property sector, which has been weighing on overall economic growth, is likely to cap iron ore price growth in the coming months, with prices remaining sensitive to stimulus announcements.”

Prices have been propped up by steel exports and strong iron ore purchasing from Chinese steel mills.

“In 2023, Mainland Chinese imports surged by 6.6% y-o-y to a record high of 1.18bnt amid the absence of official government caps on steel output,” BMI said.

“At the same time, we note a buildup of iron ore inventories at Mainland Chinese ports, rising to 124.6mnt as of February 2.

“However, inventory levels are still below the 136.5mnt reached on February 3 2023 and 156mnt in the beginning of February 2022.”

Meanwhile, the materials sector ran 1.5% higher led by iron ore and lithium producers.

Pilbara Minerals was up over 7% and IGO more than 8% higher after the world’s biggest lithium producer Albemarle last night said EV demand would grow more than 30% this year, calling current lithium prices “unsustainable”.