The big miners’ bright spot looks increasingly dim

Top miner BHP Group Ltd. today reported paltry earnings from its nickel business — a slump of more than 60% from a year earlier.

The company has earmarked the commodity as a key growth area as it hones in on metals critical to the energy transition — a strategy borne out by the recent multibillion-dollar acquisition of OZ Minerals Ltd.

Yet while a raft of large global producers have been talking up the nickel market, businesses in Asia have been turning it on its head.

Traditionally, nickel has been split into two categories: low grade for making stainless steel and high grade for batteries.

A huge Indonesian expansion of low-grade production led to a surplus, but processing innovations have allowed that glut to be refined into a high-quality product that’s hitting the battery market.

The rising Indonesian supply has helped drag prices down more than 30% this year, and analysts say there could be further declines in store as more metal makes its way to the London Metal Exchange.

BHP warned today there’s too much nickel being produced and the oversupply will run into next year.

For competitor Glencore Plc, the market has been even worse: the company posted a first-half loss from its nickel business.

The hope for the big miners is that the nickel they’re producing will, in time, be favored by carmakers on environmental grounds, since Indonesian output is largely powered by coal.

But for now, BHP boss Mike Henry and his mining peers will be nervously watching how production in the country develops.

“There has been stronger progress made than anyone was expecting,” Henry said. “It’s something we’re keeping a very close eye on.”