Australian government report identifies early signs of hope for nickel and lithium sectors
The June 2024 Resources and Energy Quarterly (REQ) report released by the federal Department of Industry, Science and Resources (DISER) has provided some positives for the nation’s critical minerals sector, particularly lithium and nickel miners.
The latest REQ found that the prices of lithium and nickel appear to have started a recovery after hitting multi-year lows in the first half of 2024 and that a number of new Australian nickel and lithium projects are proceeding, with Australian spodumene production remaining competitive with rival lithium brines.
However, the report also forecast that local export earnings for both metals will continue to decline significantly.
Nickel price rebound
Nickel prices rebounded strongly in the June quarter according to the report, with the average price in May up 25% from February lows to around US$29,000 a tonne.
The DISER report found that despite slowing activity in the global economy over the last 12 months, world demand for nickel remained robust in the March quarter of 2024, driven by China and Indonesia.
On the back of that, it forecast that the outlook for Australian nickel exports remains broadly consistent, with weaker prices and reduced production expected to see Australian nickel export earnings fall around 35% to $2.3 billion in 2024–25 and further decline to $1.5b in 2025–26.
The report also noted that the continued magnitude of new supply growth presents an ongoing risk of further price falls.
Lithium slide continues
The report said that while weakening lithium prices will have a significant impact, this will be partially offset by a 53% increase in Australia’s lithium mine production, with export earnings projected to fall by more than half over the forecast period—from $20b in 2022-23 to $9.1b in 2025-26.
On the global front, the report forecast that lithium demand will rise by 17% a year from 2023 to 2026, driven by the rising adoption of electric vehicles (EVs).
Weak Chinese demand and shifting policies in the US and EU could, however, see EV sales growth remain sluggish.
Chinese impact
According to the office of Australia’s chief economist, measures by a number of governments to intervene in trade with China will have implications for the direction and quantity of Australian resource and energy exports.
The report suggested that while Chinese domestic demand will remain the primary target for Australian resources, widespread trade measures may see the competitiveness of Chinese manufacturers deteriorate relative to other Asian trading nations that Australia supplies such as Japan and South Korea.
However, Australian exports could suffer if some of China’s manufacturing base is lost to North America and western Europe instead—since higher transport costs may preclude some of our producers from accessing these markets.