MELBOURNE (Reuters) — Australia's BHP Group will temporarily suspend its Nickel West operations and West Musgrave project from October, the miner said on Thursday, as it reels from a plunge in metal prices and an oversupply in the global market.

The world's largest listed miner intends to review its decision to temporarily suspend its Western Australia nickel operations by February 2027.

"We have not been able to overcome the substantial economic challenges driven by a global oversupply of nickel," said Geraldine Slattery, BHP's Australia president.

BHP will invest around $300 million every year after a transition period to support a possible re-start of the nickel business.

Nickel prices have recovered from three year lows below $16,000 touched at the start of the year, but they are still down by more than a quarter from year ago levels.

Global nickel producers have been squeezed by Indonesia's emergence as a supply powerhouse and by the move away from using nickel in batteries, which have contributed to a 40% price slump in the metal over the past year to around $16,800 a metric ton.

A tonne of nickel powder made by BHP Group sits in a warehouse at its Nickel West division, south of Perth

Australia has been trying to develop a processing industry to add value to mineral resources like copper, nickel and rare earths that are key to the transition away from fossil fuels, including moving downstream into battery chemicals production.

But producers are facing structural issues such as low prices and high construction and labour costs.

Australian battery metals producer IGO also said on Thursday it has paused a study to develop a plant to make precursor materials for battery chemicals amid low nickel prices.

BHP will release its quarterly production report next Wednesday.

(Reporting by Melanie Burton in Melbourne and Rishav Chatterjee in Bengaluru; Editing by Subhranshu Sahu and Keith Weir)