Recognizing ESG in nickel, lithium pricing key to Australian producers' success

Moves are afoot to ensure the environmental, social and governance standards of Australian nickel and lithium are recognized in pricing, and that the metals can compete fairly within global battery supply chains.

Lithium output from Australia, which accounts for 55.1% of global production, soared in 2023, according to S&P Global Market Intelligence data, even in the face of plummeting prices that caused shutdowns. Australia also hosts the world's third-largest nickel deposits, with production rising in 2023.

However, with prices expected to worsen in 2024, the federal government of Australia and the state government of Western Australia — where BHP Group Ltd. holds the world's second-largest nickel sulfide resource base — held crisis talks with nickel and lithium miners in Perth, Western Australia, on Jan. 25.

Australian Resources Minister Madeleine King. Source: Paydirt Media.

A spokesperson for Albemarle Corp., which part-owns the massive Greenbushes lithium mine and related downstream infrastructure in Western Australia, said in a Feb. 7 statement to S&P Global Commodity Insights that "a key message to government was the industry needs to be cost competitive, and streamlined, non-duplicative approvals and enabled infrastructure are a priority."

Wyloo Metals Pty. Ltd. wants "structural change in nickel pricing that distinguishes between nickel products and their ESG credentials to ensure that Australia's position as a supplier of low-carbon nickel under the US' Inflation Reduction Act (IRA) is protected" amid Indonesia's attempt at a limited free trade agreement with the US, CEO Luca Giacovazzi told Commodity Insights an email interview.

In the medium term, Australian Resources Minister Madeleine King pledged to globally advocate for ESG standards across Australia's nickel and lithium production so such metals are "more highly‑regarded internationally, which would affect the pricing, and therefore, the viability of the industry here in Western Australia," she said in a Jan. 25 press conference.

Western Australia Mines Minister David Michael told media in the same conference that his government will work on potential "short‑term [royalty] relief opportunities" with miners, who want a royalty scheme based on price.

Working toward a premium

Arne Dimpfel, co-founder and CFO of new critical minerals marketplace Minerallink Pty. Ltd., has found that "so far, buyers haven't been prepared to pay a premium for Australian product based on ESG credentials, but we think it's absolutely inevitable because of all the requirements under the IRA and other mechanisms."

Minerallink tracks the provenance of material through the supply chain, verifies buyers and producers, and centralizes documentation, emphasizing carbon footprint reduction methods. The trading platform "enables producers to differentiate themselves so that they can capture that premium," Dimpfel said.

Australia's government neither sets international commodity prices nor can it solve these challenges alone, but King committed to working with the industry on "how trading platforms and end users such as electric vehicle manufacturers can better recognize and disclose ESG performance to consumers."

"There is no differentiated international trading market in nickel or lithium produced to higher ESG and labor standards," King said. "Australian nickel and lithium producers must be able to compete fairly in international markets. We are determined to make this happen."

Price winning over ESG

With its one price for Class 1 nickel, the London Metal Exchange does not distinguish between different nickel products based on factors such as origin, how much carbon was used to produce the nickel, and if it is eligible for a premium under legislation like the IRA, Giacovazzi said.

"Currently briquettes, plates, pellets and rounds — of varying quality and ESG credentials, from Russia or from Canada — are all priced as Class 1 nickel, but these products are vastly different and have different end uses," the Wyloo CEO said.

"We need to see nickel priced in three categories: IRA-compliant nickel, low-carbon nickel and all other nickel. With this structure, producers of clean or IRA-compliant nickel, like Australia and Canada, can sell their products at the premium they deserve," Giacovazzi said.

However, "distinguishing between green and not-so-green nickel is very hard to do," particularly when buyers are prioritizing price over ESG credentials, Gavin Wendt, founding director of research group MineLife, told Commodity Insights.

"At the moment, price is what's winning. It's fine for governments and companies to make these commitments of encouraging the supply and purchase of green metal, but when times are tough and push comes to shove, actions might be different from corporate talk," Wendt said.

Commodity Insights' Metals and Mining Research expects rising primary nickel output from Indonesia and China to keep the market in surplus in 2024, when the average LME three-month nickel price is forecast to decline 26.1% from 2023. That surplus could last until at least 2028, at which point the lithium chemicals market is set to move into deficit.