Jakarta, Indonesia — Global nickel prices have soared since deadly violence broke out in the French Pacific region of New Caledonia last week.
The overseas territory, which has been under French rule for more than 170 years, is a major global producer of the crucial material needed to produce electric vehicle batteries, solar panels, steel and other everyday items.
Here we take a closer look at the global importance of New Caledonia's nickel industry and why social unrest in the area has affected prices.
Riots broke out after French lawmakers approved changes to the French constitution that would allow residents who have lived in New Caledonia for 10 years to vote in provincial elections.
Opponents fear the measure will benefit pro-French politicians in New Caledonia, where pro-independence indigenous Kanaks have long pushed for freedom from France.
The Kanaks seek independence for the archipelago of 270,000 people, while many descendants of settlers and other non-indigenous peoples who settled on the island want to remain part of France.
On May 15, France declared a state of emergency on the island for at least twelve days. It rushed 1,000 troops to reinforce security forces that lost control of some parts of the capital Nouméa.
New Caledonia has between 20 and 30% of the world's nickel reserves. It is a major part of the archipelago's economy, compromising up to 90% of exports and employing about a quarter of the workforce.
The European Union has classified nickel as a critical raw material, meaning it is economically and strategically important to the European economy but is considered to pose a high risk associated with its supply.
“Some of the discussion around France wanting to maintain its control over New Caledonia is driven by the hope of securing the large nickel reserves there, perhaps with a view to future electric vehicle production,” said Nicholas Ferns, a researcher at Monash University. Australia.
The United States and EU members have been working to secure their own crucial material supply chains to catch up with China, which controls or invests in much of the world's supplies.
In 2021, EV maker Tesla invested in the Goro nickel mine when it was sold to a local consortium majority owned by local stakeholders.
Concerns about supply disruptions from New Caledonia due to the unrest and sanctions on metals, including nickel, from Russia have pushed global prices above $20,000 a tonne for the first time since September.
The price of nickel on the London Metal Exchange rose to $21,275 per tonne on Tuesday from $18,510 on May 8, rising immediately after the unrest began.
The price hike came at the same time the Paris-based International Energy Agency said in a report that supply shortages of critical materials – including nickel – could emerge in the future, driven by “rapid” growth in demand for electric cars , mine closures and slowing investments.
While sharp increases in commodity prices are disruptive to industries, New Caledonia's nickel industry was already in trouble before the political crisis due to a 45% drop in global nickel prices last year.
This has hit the nickel industry-dependent economy hard. New Caledonia's mining industry has struggled to compete with Indonesia, the world's largest nickel producer, due to decades of export restrictions and high energy costs that have made nickel production more expensive and less profitable. “The nickel industry is inevitably intertwined with the independence debate in New Caledonia,” said Ferns. “A decline in nickel prices in recent years has exacerbated New Caledonia's economic problems, which could then be linked to some of the factors involved in the recent riots.”
The French government has promised to maintain the area's nickel industry with subsidies.
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