[SMM In-Depth Analysis] New Regulations Again? Impact of Numerous New Indonesian Policies on the Nickel Market

The Indonesian Ministry of Energy and Mineral Resources Announces New Industry Reference Prices, with New Policies Emerging One After Another

On February 24, 2025, the Indonesian Ministry of Energy and Mineral Resources (ESDM) issued the "Guidelines for Determining Benchmark Prices for the Sale of Metallic Minerals and Coal," under Decision No. 72.K/MB.01/MM.B/2025. The guidelines state that "operators in the production phase holding Mining Business Licenses and Special Mining Business Licenses must refer to benchmark prices when selling their produced minerals or coal," and that "the currently established benchmark prices for metallic minerals and coal are not yet fully effective and cannot serve as a reference for operators in the production phase holding Mining Business Licenses and Special Mining Business Licenses when selling minerals or coal." To some extent, this conveys the intention to control nickel ore and downstream nickel product prices through the formulation and regulation of HPM prices.

On March 1, 2025, ESDM issued Decision No. 80.K/MB.01/MEM.B/2025, titled "Reference Prices for Metallic Minerals and Coal for the First Period of March 2025," announcing the reference prices for metallic minerals (hereinafter referred to as HMA) and coal (hereinafter referred to as HBA) for the first period of March 2025. It was clarified that HMA and HBA would serve as the basis for calculating the benchmark prices for metallic minerals (hereinafter referred to as HPM) and coal (hereinafter referred to as HPB) for the first period of March 2025, respectively.

Starting in February, Indonesia has introduced a series of new policies targeting both the resource sector and the smelting sector, covering areas such as finance, foreign exchange, and industrial pricing. Just a few days ago, the Indonesian government's foreign exchange control policy attracted significant attention. On February 17, Indonesian President Prabowo issued Presidential Regulation No. 8 of 2025, announcing the Natural Resources Export Foreign Exchange Control Policy (DHE SDA), which has now been made public. So, what are the underlying connections between these policies, and in what aspects might these policies continue to evolve?

Regarding the compilation of the above policy details:
1. In the "March 2025 Issue 1 Reference Prices for Metal Minerals and Coal," the HMA prices for the first issue of March 2025 were announced, including the calculation methods for 19 types of metals or ores such as nickel, cobalt, lead, zinc, gold, and chrome ore. Taking nickel metal as an example, the nickel metal price announced in this issue was $15,276.33/mt, and the original calculation method of "taking the average of the LME spot settlement prices from the 20th of the second month prior to the HPM period to the 19th of the month prior" was replaced with "taking the average from the 5th to the 25th of the month prior to the HPM period." According to SMM, subsequent HMA prices will be revised once at the beginning of each month, changing to revisions at both the beginning and mid-month. According to APNI Secretary General Meidy, the HMA price for the second issue of March may be "taking the average of the LME spot settlement prices from the 26th of the previous month to the 4th of the current month during the HPM period." This calculation formula is still under confirmation and adjustment and will be officially announced by ESDM around the 15th.

2. In the "Guidelines for Setting Benchmark Prices for the Sale of Metallic Minerals and Coal," the benchmark price formulas for the sale of eight nickel-related metallic mineral products are specified, as shown in the figure:

The calculation logic of HPM for Indonesian nickel ore has not changed and remains as HPM nickel ore = Ni% * CF * HMA nickel. However, the HMA price has changed due to a modification in the calculation method. The HMA nickel for March derived from the previous calculation method was $15,306.52/mt, while the HMA nickel announced in the first phase of ESDM for March was $15,276.33/mt, $30.19/mt lower than the original calculation method. The overall change is relatively small. Moving forward, HPM will be adjusted to change every half month.

SMM's In-Depth Analysis of Specific Policy Details

Nickel Ore: In the "March 2025 Issue 1 Reference Prices for Metal Minerals and Coal," the calculation method for HMA of metals or ores was revised, possibly due to a certain lag in the selection of time periods in past HMA calculations. This lag resulted in the calculated HPM prices failing to reflect the current price trends in the market and occasionally even showing a reverse trend compared to the absolute prices in the nickel ore market. Taking the SMM Indonesia 1.6% grade nickel ore price as an example, as shown in the figure:

Additionally, the previous HMA revision cycle was once a month, which could not reflect mid-month price changes in the nickel ore market. Looking ahead, the HMA will be revised to a semi-monthly cycle, with the valuation period more closely aligned with current nickel market prices. The timeliness of market feedback for the subsequent HPM nickel ore benchmark price may improve.

2. Regarding other nickel products: The "Guidelines for the Formulation of Benchmark Prices for the Sale of Metal Minerals and Coal" newly added or clarified the HPM price calculation methods for seven other nickel-related products besides nickel ore. However, according to SMM, there is a significant discrepancy between the HPM prices of other nickel products and actual market prices. Taking NPI as an example, HPM NPI = Ni% * HMA Nickel * CF. Based on this formula, for instance, 12% NPI in March would result in an HPM NPI price of $1,558/mt, which, when converted to domestic sales prices, would be approximately 1,072 yuan/mtu. On March 4, SMM reported the Indonesian 10-14% high-grade NPI floor price at 984-991 yuan/mtu, with the HPM price higher than the domestic sales price. The Indonesian nickel ore benchmark price HPM is related to the "nickel ore resource tax" that domestic market participants are required to pay, while most Indonesian nickel smelting products are for export and are generally not subject to local VAT. Moving forward, attention should be paid to whether government policies will apply the HPM price to the payment of export tariffs.

3. The first three articles of the "Guidelines for Setting Benchmark Prices for Metal Minerals and Coal Sales" are as follows:

Article 1: Establish benchmark prices for the sale of metal minerals and coal, including:
a. The benchmark price formula for metal minerals (hereinafter referred to as HPM), as outlined in Annex I, which forms an integral part of this decision;
b. The reference price formula for coal (hereinafter referred to as HBA), as outlined in Annex II, which forms an integral part of this decision;
c. The benchmark price formula for coal (hereinafter referred to as HPB), as outlined in Annex III, which forms an integral part of this decision.

Article 2: Operators in the production phase holding mining business licenses, operators in the production phase holding special mining business licenses, as well as holders of special mining business licenses as a continuation of contracts/agreements, including holders of work contract agreements and coal mining cooperation agreements, must refer to the HPM or HPB mentioned in Article 1 when selling the metal minerals or coal they produce.

Article 3: The HPM and HPB mentioned in Article 1 represent the minimum prices for the sale of metal minerals or coal by operators in the production phase holding mining business licenses, operators in the production phase holding special mining business licenses, as well as holders of special mining business licenses as a continuation of contracts/agreements (including holders of work contract agreements and coal mining cooperation agreements).

The regulation explicitly states that its enforcement targets remain the holders of "IUPK/IUP." In addition to local Indonesian mining companies, most smelters in Indonesia are also holders of "IUPK/IUP." However, it remains uncertain whether the HPM prices under this policy apply to export products. Currently, the HPM for other products shows a significant price spread compared to market pricing, and the upward price support for products like NPI is limited. This policy may face certain challenges during its implementation.

How to View Indonesia's Relevant Policies in the Future: The Significance of Implementing HPM Prices

For the nickel ore sector, the current market supply and demand situation is more likely to be reflected in the premium of Indonesian domestic trade ore, while changes in HPM caused by modifications to the HMA calculation method may not directly affect market prices in the short term. However, if HPM prices are implemented and extended to export prices, two possibilities may arise (using high-grade NPI as an example):

Possibility 1: If the implementation of HPM prices is strong, requiring the market to use HPM prices as the "floor price" for settlement, it would significantly restore the sales profits of Indonesian NPI enterprises. According to SMM statistics, the January cost of Indonesian NPI projects on Sulawesi Island was approximately $11,626/mt (Ni contained), while the average cost on other islands was $11,472/mt (Ni contained). If HPM is strongly implemented, the profit restoration may accelerate the subsequent commissioning of NPI production, further expanding the future nickel supply surplus.

Possibility Two: If the HPM price is promoted as a reference for export pricing but only serves as a basis for subsequent government tax collection, that is, if the market transaction price is lower than or equal to the HPM price, tariffs will be paid according to the standards stipulated by HPM. If the market transaction price is higher than the HPM price, tariffs will be paid based on the market transaction price. In practice, this would further increase the export costs for nickel-iron producers.

(Both assumptions are based on the application of HPM prices in the settlement of export product selling prices.) These two policies were introduced around the same time as Indonesian President Prabowo issued Presidential Regulation No. 8 of 2025, which announced the foreign exchange control policy for natural resource exports (DHE SDA). Although some issues may arise during the implementation process, it clearly reflects the Indonesian government's intention to guide nickel prices, enhance the value of Indonesian nickel products, and increase tax revenue. Since the beginning of 2025, ESDM has repeatedly stated in public interviews that it will stabilize nickel prices and ensure the value of nickel products by controlling the annual RKAB quota. Article 7 of Presidential Regulation No. 8 of 2025 was amended to stipulate that foreign exchange from natural resource exports (DHE SDA) must be deposited 100% into designated accounts for at least 12 months (exceptions: for oil and natural gas-related DHE SDA, a minimum of 30% must be deposited for at least 3 months). Whether this will be expanded to other products remains to be seen.

Starting in 2025, from the launch of the SIMBARA system at the beginning of the year to the widely discussed announcement of the foreign exchange control policy for natural resource exports (DHE SDA), and the adjustments to HPM and HBA prices, the Indonesian government has consistently conveyed its policy intention to better control the pricing power of local resources and products, increase national tax revenue, and enhance Indonesia's economic standing internationally. For the nickel industry, from nickel ore to smelters, the regulatory intensity of policies at all stages has become increasingly stringent. During periods of changes in Indonesia's foreign exchange control policies, it will be necessary to pay closer attention to export-related policies to better navigate the opportunities and challenges of investing in Indonesia.