Explainer: Impact of New Caledonia Riots on the Nickel Industry

By Gus Trompiz

PARIS (Reuters) – Civil unrest in New Caledonia, a French territory in the southern Pacific known for its substantial nickel production, has disrupted mining operations and contributed to a surge in nickel prices.

Significance of New Caledonia’s Nickel Industry

New Caledonia possesses the fifth-largest nickel reserves globally, a metal crucial for stainless steel and increasingly for electric vehicle batteries. In 2023, it ranked third worldwide in terms of mined nickel. The island’s nickel mining industry began in the 19th century alongside the colonization of the territory and its indigenous Kanak population by France.

The three major nickel companies operating in the region are Koniambo Nickel SAS, Prony Resources New Caledonia, and Société Le Nickel. Each of these companies operates its own processing facility and collectively generates around 13,000 direct and indirect jobs, according to local authorities. Koniambo Nickel is jointly owned by the northern province and the global miner Glencore, Prony Resources has several stakeholders including Trafigura, and Société Le Nickel, the historic nickel producer, is predominantly owned by the French mining group Eramet.

Impact of Unrest on the Nickel Industry

Due to the unrest, most mines have ceased operations, and Société Le Nickel reported damage from a fire affecting one of its conveyor systems. Additionally, the company has significantly reduced its output capacity.

As a result of these disruptions, nickel prices on the London Metal Exchange briefly reached nine-month highs before declining. The reduced output from New Caledonia might contribute to diminishing a global surplus of nickel. Prior to the unrest, the territory was already producing below full capacity, and long-term price stability is anticipated to be challenged by the continued growth in supply from Indonesia.

Koniambo Nickel’s operations have been idle since February, and consistent disruptions to Société Le Nickel’s mines have hampered its productivity.

Challenges Facing New Caledonia’s Nickel Sector

The nickel companies in New Caledonia have struggled financially over the past decade, relying heavily on financial support from private investors and the French government, which provided over €700 million (approximately $759 million) from 2016 to 2023. High costs of energy and labor, coupled with technical difficulties, have negatively impacted their output.

New Caledonia is also contending with fierce competition from cheaper nickel suppliers, particularly Indonesia, which produced over half of the world’s nickel in 2023.

The political landscape in New Caledonia has also influenced the nickel industry, particularly as the pro-independence northern province opposes exports of unrefined nickel ore. Ongoing permit disputes between this province and Société Le Nickel complicate the situation further.

Last year, the industry faced potential collapse as global nickel prices plummeted, and both Eramet and Glencore indicated they would no longer provide financial support. The French government has been pursuing a rescue package that would involve commitments to supply nickel for Europe’s battery sector, but negotiations have stalled amid deteriorating relations between pro-independence and loyalist factions.

Discussions for a rescue include provisions for hundreds of millions in public loans and energy subsidies, along with reforming mining permits and export regulations.

Prospects for New Investment

Both Glencore and Prony Resources are actively seeking to divest stakes in their companies. Even prior to the unrest, analysts identified obstacles to attracting new investors.

"It’s challenging to pinpoint potential new investors," remarked Nikhil Shah from the consultancy CRU. However, concerns regarding reliance on Indonesian supply chains could sustain interest in New Caledonian nickel.

Issues related to engineering at Koniambo Nickel’s plant have hindered operations, but resolving these problems could enhance efficiency in mining and shipping operations, according to mining consultant Didier Julienne. Glencore has halted operations at its Koniambo site for six months while it seeks a buyer for its 49% stake.

Koniambo Nickel officials mentioned that they are considering extending the idling period, but noted this was not related to the recent unrest. Glencore emphasized that its sale process is ongoing without plans for an extension.

Prony Resources, which refocused on electric vehicle batteries after being relaunched in 2021, has expressed interest in finding a core investor to acquire a 74% stake by buying out existing shareholders, including Trafigura.

Eramet has committed to provide ongoing support for Société Le Nickel’s operations following an agreement with the French government to convert debt, although there are currently no discussions regarding the sale of Société Le Nickel.