Key Takeaway From SMM Southeast Asia Nickel-Chromium-Manganese Stainless Steel Industry Conference: Exploring Pricing Mechanism Based on the Current Development Situation of Indonesian Nickel Industry

At the 2023 Southeast Asia International Nickel-Chromium-Manganese Stainless Steel Industry Chain Summit organized by SMM, SMM Senior Vice President Lu Jialong shared his views on exploring the pricing mechanism based on the current situation of the development of the Indonesian nickel industry.

Background: Why is the index needed?

Indonesia dominates the nickel mining and smelting sector and is expanding its operations into downstream areas.

The Indonesian nickel industry has a large share in the midstream smelting and mining, with mining for domestic sales and midstream smelting mainly for export. And it is expanding to downstream sectors. The world's largest supplier of nickel elements has not yet formed the independent price in nickel industry.

Indonesian price index is largely linked to other benchmarks.

Currently, domestic consumption of nickel products in Indonesia remains low and domestic trade is not active except for nickel ore. The nickel industry chain needs to be further developed in order to realize market trading.

Indonesia's domestic trade is on mines. The domestic trade price of mines needs a price under the free trade market.

Currently, Indonesia uses the SMM price as a settlement benchmark for some of its nickel-related products exported overseas.

Other sectors are mostly exported, as the FOB price for export is also taken into account.

Non-Indonesian prices do not reflect the real situation of the Indonesian nickel industry.

Competition for high-grade nickel ore from Indonesia is gradually intensifying, coupled with the anti-corruption investigations that emerged in September. The actual CIF price of domestically traded nickel ore is much higher than HPM pricing.

As the difference between supply and demand for nickel ore and finished products grows, the deviation in HPM pricing will become more pronounced.

With Indonesia's anti-corruption investigation emerging in September, the actual CIF price of domestically traded nickel ore in Indonesia is much higher than the HPM price.

The major declines have tapered off since late 2020. Linking spot product to nickel futures pricing is difficult and risky.

The original pricing of the Indonesian mines was based on the HPM price. Based on the comparison of the existing nickel prices of various products, the LME's nickel price is not suitable as a benchmark for the pricing of nickel laterite ore.

With the rapid development of class 2 nickel, class 1 nickel can no longer reflect the supply and demand of class 2 nickel.

Indonesia must establish a nickel price that specifically reflects the Indonesian market.

SMM gives future price points that need to be set locally in Indonesia based on the current market system in Indonesia.

SMM announces Indonesian nickel ore and NPI price benchmarks: trial set for December 1

SMM Indonesia nickel ore price calculation

Prices are collected from miners, traders and smelters and entered into the calculation

Price calculation formula: ore price collected from mines * weighting % + price collected from traders * weighting % + price collected from smelters * weighting%

During the preliminary stage and trial release, considering the limited liquidity and price inputs, SMM will collect as many representative price inputs as possible for the calculation, with price collection prioritized as tradable, tradable, price interest, etc.

SMM Indonesia NPI FOB price calculation

Currently, Indonesia does not have a lot of goods sold to other countries, and the FOB price is not essentially the FOB price, but by the downstream trading market actual transaction FOB inverted minus freight conversion. We hope that with the implementation of the current FOB price, the FOB market free trade will be more active. Follow-up directly to the collected FOB price as a benchmark price quote. Subsequent quotes directly take the collected FOB price as the base price.

SMM Pricing Reporting Workflow

This is the internal workflow for all SMM Price Benchmarks. This part is not much different from other PRAs. The biggest difference is how we select the submitters, how we set the weights and how we eliminate outliers, all of which will follow the SMM internal workflow. This is compliant with the IOSCO principles.

Data Collection

Weight Adjustment

Modeling

Price Publishing

SMM is an independent PRA from China, founded in 1999.