Glencore to divest stake in nickel operation

Company News

by Glenn Dyer

Glencore has announced intentions to sell its 49% stake in the Koniambo Nickel SAS (KNS) venture, a venture wrought with losses due to plummeting nickel prices exacerbated by the unchecked nickel production in Indonesia.

Glencore, the Swiss miner and commodity trader, divulged plans on Monday to divest from the struggling KNS operation in New Caledonia, citing the enduring slump in nickel prices. The company, in partnership with the local government, expressed its intent to shutter and offload its stake in KNS, while expressing a willingness to facilitate a swift reopening should a new investor emerge.

"For over ten years, Glencore has been the primary funder of KNS without ever realizing a profit," the company lamented in a statement. "Even with the French government’s proposed assistance, high operating costs, and current very weak nickel market conditions mean KNS remains an unprofitable operation."

Despite contributing $US5.6 billion in economic benefits to New Caledonia since 2012, including substantial investments in construction and operations, KNS has faced insurmountable challenges in turning a profit. The French government has mulled over a rescue plan for the nickel sector, contemplating emergency loans and proposed reductions in energy bills, yet a definitive agreement remains elusive.

Glencore's decision to disengage from KNS comes amidst a broader industry shakeup catalyzed by heightened nickel output from Indonesia and China. This surge in production has triggered a cascade of consequences, including a sharp decline in nickel prices, forcing companies worldwide to reassess their operations.

In a twist of fate, Glencore's announcement coincided with a Reuters report underscoring the pressure facing Indonesian and Chinese nickel producers. The report highlighted efforts to curtail output in a bid to mitigate losses amidst the price plunge. This wave of production has not only flooded the market but has also led to closures of Australian nickel mines, exacerbating global supply dynamics.

The current nickel price, hovering around $US16,000 a tonne, reflects the ramifications of increased Indonesian production, which last year accounted for over half of global mined supplies. With prices plummeting by nearly 50% last year, industry analysts stress the necessity for substantial production cuts to alleviate the surplus and bolster prices.

Glencore's New Caledonian facility, with a nominal capacity of 60,000 tonnes per year, now faces uncertainty amid the prevailing market conditions. While the company's decision to divest underscores the challenges gripping the nickel sector, the industry at large awaits a concerted effort to navigate the turbulent waters and restore equilibrium to the market.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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