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Global mining companies have called for a green premium for sustainably produced nickel traded on the London Metal Exchange, as a flood of allegedly “dirty” supplies from Indonesia squeezes profits for producers.
BHP, the world’s largest mining group, and Australian billionaire Andrew Forrest, who owns miner Wyloo Metals, have been pushing the LME to distinguish between so-called dirty nickel and cleaner supplies.
Nickel mining in Indonesia, the world’s largest producer of the electric car battery and steelmaking ingredient, has faced growing criticism from environmental groups for causing forestry loss, mining waste pollution and high carbon emissions because of its reliance on coal-fired power.
In response on Tuesday the LME said the “market for ‘green’ nickel is not yet large enough to support vibrant trading in a dedicated green futures contract”.
Indonesia’s nickel industry has grown rapidly since 2019 as Jakarta has leveraged its vast reserves to build an electric vehicle ecosystem. Chinese companies have poured in billions of dollars and control the country’s biggest nickel operations.
“We have got to differentiate between dirty nickel and green nickel. The LME must differentiate between dirty and clean. They are two different products, they have two vastly different impacts,” Forrest told reporters at a briefing in Australia.
BHP’s chief executive Mike Henry said on an earnings call with reporters last month that it would “seem sensible” to see a price premium for sustainably sourced nickel.
The Australian group recommended in its latest economic and commodity outlook report that the LME should set more responsible sourcing targets for nickel producers. If they fail to meet those targets, they face being delisted from the exchange.
“An increasingly well-known range of ESG and responsible sourcing challenges currently exist” in Indonesia, said BHP.
Indonesia’s low-cost nickel suppliers are expected to wipe out rivals in the next few years and could end up accounting for more than three-quarters of the world’s high-purity nickel tradeable on the LME by 2029, the head of French miner Eramet warned last month. The price of nickel is down 40 per cent over the past year to $17,400 a tonne.
In a notice to market users on Tuesday, the LME said that while the market could not yet sustain a separate futures contract, it supported producers, traders and consumers in trading low carbon nickel, which is listed on its Metalshub platform.
The exchange said “the transaction data supports identification of a credible ‘green premium’ to the LME price”. It will work with the market on refining the CO₂ threshold and measurement methodologies for low carbon nickel to help identify the premium, it added in the notice.
In 2022, the LME introduced responsible sourcing guidelines in response to child labour and other human rights concerns in the production of cobalt, but they do not include metrics on emissions.
Angela Durrant, analyst at commodity data firm CRU Group, said the two main production methods in Indonesia pose different environmental issues.
Smelting the ore in a furnace generates huge volumes of CO₂, whereas high-pressure acid leaching generates large volumes of waste, she said.
Indonesia’s ministry for energy and mineral resources did not respond to a request for comment. Jakarta has said it would step up monitoring of environmental standards in response to previous criticism over deforestation and pollution.
In the past year, the LME has approved several new products from Chinese producers GEM, Huayou Cobalt and CNGR Advanced Material to boost volumes on its contract, which was hit in 2022 during a nickel market crisis.
But analysts said it was unlikely that the LME would establish a separate contract for Indonesian nickel. They said the green premium was more likely to be negotiated through long-term contracts with customers. Government policies, such as the EU’s carbon border tax, could also provide incentives to consumers to pay more for cleaner materials.
Sebastian Kreft, founder of trading software platform Metalshub and former head of nickel sales at miner Anglo American, said separating green and dirty nickel would go against recent demands to rebuild liquidity on the LME following the nickel crisis.
“Why does LME have to achieve a new contract as BHP can just negotiate [a green premium] with their customers,” he said.
Additional reporting by Nic Fildes in Sydney
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