New Caledonia and the Geopolitics of Critical Metals: Towards a Disruption of the Nickel Market?

Nickel is a critical metal, central to today’s digital and ecological transition, and its price is highly unstable. At a time when New Caledonia has been hit by major political unrest, the archipelago accounts for 5.6% of the world’s nickel production, 20% of its GDP and 90% of its exports, which explains why the market is currently depressed. How can we assess the current situation and world mining production? What is the current state of nickel geopolitics? Emmanuel Hache, Senior Research Fellow at IRIS, specialised in energy forecasting and the economics of natural resources (energy and metals), provides some answers.

Are the recent events in New Caledonia linked to the situation on the nickel market?

Paradoxically, the global nickel industry is currently extremely fragile. Nickel is seen as one of the metals of the energy transition, along with copper and lithium. While nickel is currently mainly used in alloys and stainless steel, the low-carbon technology sector, and batteries in particular, are playing an increasingly important role in the use of this metal. Nickel represents the N in lithium-ion batteries or NMC (nickel, manganese, cobalt). By 2040, it is estimated that requirements could increase by 75%, from 3.6 million tonnes today to more than 6.2 million tonnes, with low-carbon technologies accounting for more than 50% of usage at that time. With market expectations like these, prices should tend to consolidate, or even rise significantly. Yet nickel prices continue to be volatile. On the London Metal Exchange (LME), one of the world’s leading nickel exchanges, prices rose by almost 40% in 2021 and 2022, before falling by an annual average of 17% in 2023. Above all, prices deteriorated throughout 2023, falling from $28,000 a tonne in January 2023 to $16,100 in January 2024, a drop of 43%! Since February 2024, prices have risen slightly to around $18,000 a tonne, due to the sanctions imposed by the United States and the United Kingdom on metals from Russia, which accounts for 5.5% of world production. But we are a long way from the peaks seen for this metal, which is so essential to the low-carbon transition. As a reminder, in May 2007, on the eve of the global financial crisis, nickel prices reached a monthly average of more than $52,000 per tonne, almost 3 times the current price.

The low-carbon transition is a particularly buoyant context. So how do you explain the current slump in prices?

The depressed price is mainly due to the situation of world producers. In 2023, nearly 3.6 million tonnes of nickel ore came out of the world’s main mines, up 10% on the previous year. Production in the world’s leading producer rose by almost 14% last year, which precipitated a fall in prices. Indonesia now accounts for 50% of the world’s mining output, compared with less than 30% in 2019. Next come the Philippines (11% of global production), New Caledonia (5.6%), Russia (5.5%) and Canada (5%). And the International Energy Agency (IEA) estimates that by 2030 the group formed by Indonesia, the Philippines and New Caledonia could account for 75% of international mining production. Against this backdrop, New Caledonia’s nickel industry is facing stiff competition. Despite accounting for 5.6% of the world’s reserves and increasing production in recent years, New Caledonia is being hit hard by the policies of the world’s leading producer (increased production, recovery of the industry), as well as the rise in energy prices since 2022. In addition, most of the groups operating in the region are heavily indebted and have not invested enough in recent years. The French group Eramet and its subsidiary Société Le Nickel (SNL) have seen a decline in production and sales. It is the leading local employer. The archipelago’s other plants are experiencing even greater difficulties: the Koniambo Nickel SAS (KNS) plant is mothballed following the departure of Glencore, despite substantial support from the French government, and the Prony plant is also heavily in debt. Yet nickel is a veritable Eldorado for the archipelago. The industry accounts for between 20% and 25% of private-sector jobs, and makes a significant contribution to the GDP of the local economy, both directly and indirectly (around 20% of GDP). The nickel crisis in New Caledonia is symptomatic of a new form of resource curse and the lack of diversification of activities in the archipelago. Dependence on nickel, which accounts for 90% of the archipelago’s exports, is a blessing when prices are at their highest and a major problem when prices are at their lowest.

Is there a new resource curse linked to the low-carbon transition?

In the past, the possession of a natural resource was seen as a source of wealth and power for economies. Raw materials paved the way for the domination of the United Kingdom in the 19th century and then of the United States in the 20th century, and the various conflicts around the world have definitively established their strategic nature. Today, China’s positioning in the metals refining segment of the low-carbon transition is a step in this direction. However, for some producer countries whose position is more upstream of the mineral sector (the mine), owning a raw material is not necessarily a guarantee of development. The concept of Dutch Disease was coined in 1977 in an article in The Economist to describe the Dutch economy, following the discovery of gas fields in 1959 and their exploitation a decade later. The Dutch disease can be seen as one of the economic components of a much broader concept of the ‘resource curse’ developed in the early 1990s. The needs generated by the low-carbon transition raise the question of a resource curse for the ecological transition. We are in a decade of uncertainties: uncertainties about the speed of deployment of low-carbon technologies, geopolitical uncertainties with the various current conflicts, and major economic uncertainties with the risk of fragmentation of economic areas. Against this backdrop, it is difficult to see where investment is going, and assessing needs remains particularly risky. Producing countries are now tempted to form cartels in an attempt to control prices. The BRICS (Brazil, Russia, India, China and South Africa) became BRICS+ in January 2024 with the entry of Saudi Arabia, Iran, the United Arab Emirates (UAE), Egypt and Ethiopia. They now occupy a dominant position in both production and world reserves of certain critical metals such as platinum, rare earths and copper. In addition to their abundant resources, the group’s dominant position is also reflected in their common policy of restricting exports of strategic metals. Commodity markets, which are cyclical by nature, amplify global upheavals, as they underpin the global economy and the main dynamics of the current transition (ecological and digital).

 

Translated by Deepl.