BHP Group (NYSE:BHP) has begun reducing its Australian workforce.
What Happened: The global miner's decision came after a substantial slump in nickel prices attributed to a surge in supply, particularly from Indonesia.
The company confirmed that it has let go of approximately a quarter of its contractor workforce at the West Musgrave nickel and copper project in Western Australia following restructuring initiated in February.
According to Reuters, BHP's outgoing CFO David Lamont underscored the necessity of reviewing the nickel division, citing operational losses and the prevailing market conditions.
"30% of the Australian nickel market has gone offline, and another 30% is under pressure," he said on a recent call with shareholders.
BHP's recent financial results nosedived. The company recorded an 86% year-over-year profit decline, owing to a $2.5 billion writedown in its nickel business.
CEO Mike Henry welcomed the Australian government's support. He also criticized its "Same Job, Same Pay" policy, which creates issues in a highly cyclical industry.
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Why It Matters: A downturn in nickel prices has been exacerbated by a supply surge from Indonesia. The country's incoming president, Prabowo Subianto, vows to continue the country's leading position in the nickel market.
Indonesia accounts for about 40% of the global nickel supply. And Subianto aims to maintain the policy of 'downstreaming' raw materials. This involves halting exports and focusing on domestic processing to extract more value from the nation's resources.
Yet, the surge in processed nickel supply has led to price declines, prompting discussions among policymakers and industry experts on strategies to balance supply and demand while maximizing value addition.
Conflicting expectations regarding future trends further compound the nickel market's volatility. S&P Market Intelligence anticipates continued oversupply beyond 2025. But Macquarie Group's managing director, Jim Lennon, issued a cautionary note regarding the potential for a surprise deficit.
Per The Australian Financial Review, Lennon highlights the risk associated with slow mining permit approvals in Indonesia. This could constrain output growth and disrupt market projections.
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