【SMM Analysis】Indonesian Nickel Ore Premium Stable in Q3? Logic Explained

Background

Indonesia’s nickel ore are traded using the local benchmark price set by the government (HPM), which is the average of LME price for 20 days back, and it is set in a bi-weekly period. However, the current nickel ore grade, especially for higher grade ore/saprolite (1.5% and above) is traded at a higher price, by an additional amount called “premium”. The existence of premium is mainly derived by Indonesia's strict regulations of royalties of cost increase of ore as well as the launch of SIMBARA system that tackles the illegal procedure of ore transaction. Overall, it reduces the availability of ore transacted in the market and limits the availability of ore to amid the growing number of smelters. Therefore, "premium" exists to avoid this supply-demand mismatch and to ensure that the smelters could secure their ore shipments from the mining companies.

According to SMM’s data, the mainstream premium is transacted at $24-$26 as the majority of the nickel ore traded in the market. In the previous quarter, the premium price is mostly driven by the royalty hikes of 14%. However, moving towards the second quarter, it dropped by approximately 2 dollars on average in July, and keeps stable until September. The reason and analysis underlying are as follows:

• Weather Conditions

Although rainy season in Indonesia has prolonged since the beginning of January. Rainy season has also extended until July. Weather in overall third quarter is relatively better than the previous quarters, in parts of Sulawesi and several parts of Halmahera there is a better turnaround although scattered rainfalls occurred.

• RKAB Approvals

Indonesia’s RKAB revision submission ended in July 31^st 2025, with potential additional quota from the mining companies, that are increasing the ore supply in the market.

• Smelters’ Continuous Losses

The main reason for the premium decline in July was largely tied to smelters’ price tolerance. In the previous quarter, NPI prices fell steadily from April through June, while nickel ore premiums continued to climb despite ongoing losses among NPI producers. This has forced some local smelters to scale back production or even shut down operations. As competition persisted between smelters seeking ore and miners limiting supply, producers at the lowest cost threshold could no longer absorb high raw material prices. Consequently, nickel ore premiums adjusted downward to levels more acceptable for smelters.

During mid-July, NPI prices finally are facing an ongoing upward trend until September. However, the premium prices are seen stable due to a massive losses occurred in the previous quarter, coupled with several continuous RKAB releases and Indonesia’s overall better season. Although, NPI prices have increased significantly, the ore procurement from local smelters could not increase that quickly. As a result, both smelters and miners have the competitiveness to protect each of their price willingness.

Outlook

Looking forward, Indonesia’s nickel ore premium will be relatively hard to be decreased. Recently, ESDM and Indonesia’s government has assigned Forestry Task Force to tackle illegal mining sites. Although major impacts on the overall supply might not have been very significant, it signals another round of anticipation ore scarcity to the next round of RKAB Approvals in 2026. In conclusion, premium nickel ore in Indonesia is expected to remain at this level heading into Q4, with limited probability decline, and potential signals of a price increase toward the end of the year, amid uncertainty over whether smelters will secure ore in advance to safeguard their supply for early 2026.