New Caledonia unrest deepens nickel industry crisis 

Deadly riots that rocked New Caledonia in May, the French overseas territory in the South Pacific, has deepened the crisis for the territory’s embattled nickel industry.

Sparked by controversial plans to give more voting rights to non-indigenous people, nickel mining in the territory has been halted since the start of the unrest in the middle of last month.

New Caledonia produces 6% of mined and 2% of refined nickel globally, according to theBenchmark Nickel Forecast. Last year, over 70% of New Caledonia’s refined nickel production was in the form of ferronickel, a low-grade nickel used in the production of stainless steel, with the remainder mixed hydroxide precipitate (MHP) targeted at the battery industry.

London Metal Exchange nickel prices rose by more than 8% in the wake of the unrest, breaching the $20,000 per tonne mark in May for the first time since July 2023. Prices retreated to below $18,000 per tonne in early June, similar to levels seen before the unrest following a lifting of the state of emergency by the French government.

The unrest has also provedsupportive to nickel prices in the batterysupply chain, according to theBenchmark Nickel Price Assessment. Benchmark’s MHP, CIF Asia, % payable to LME recorded a slight uptick following the unrest, while upstream factors have helped hold up the Chinese sulphate price despite downstream demand showing seasonal weakness.

What impact could the unrest have on the nickel market?

Benchmark estimates that New Caledonia produced over 100,000 tonnes of refined nickel in 2023, with overall mine production exceeding 200,000 tonnes of contained nickel.

If disruptions to nickel mining in the region were to persist for a prolonged period of time, it could have a material impact on the nickel market balance in 2024, according to Will Talbot, principal nickel analyst at Benchmark.

“These disruptions could affect the market balance, which is forecast to be oversupplied by around 100,000 tonnes this year,” he said. “Were all New Caledonia’s material to stay offline, there is a risk of rebalancing.”

The impact of a potential re-balancing would be less acute for the battery industry, as the use of the territory’s nickel is far more pervasive in the stainless steel industry. The region primarily exports its ore and refined nickel to smelters and stainless steel operations in China and other countries in Asia.

In this scenario, the removal of New Caledonian units from the market could provide support for LME nickel prices across the remainder of the year. Benchmark estimates that low nickel prices have taken out about 60,000 tonnes from the market in 2024, with several more operations classified as “at risk” of closure under the current price environment.

“If New Caledonia supply were to remain offline, it could provide support for some of the bigger Australian producers to stay online this year,” Talbot added.

Unrest exacerbates existing crisis

The turmoil has compounded high production costs for nickel operations in New Caledonia. The territory’s nickel sector has long been blighted by high-operating costs, capex blowouts, and difficulties ramping supply to nameplate capacity.

A wave of low-cost supply emanating from Indonesia led nickel prices to fall across 2023 and early 2024, eroding the cost competitiveness of New Caledonia’s nickel sector.

The French government has been in negotiations to rescue the New Caledonia nickel industry, which forms the backbone of its economy. Paris also wants to avoid the struggling industry falling into the hands of potential Chinese investors as it seeks to assert greater geo-political influence in the region.

In November, the French government proposed the ‘Nickel Pact’, a state bailout package that would subsidise energy costs up to 200 million euros a year, in return for commitments to supply more nickel to Europe. The package, however, has met resistance from local indigenous groups that are demanding greater autonomy for the industry.

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