Indonesia has reportedly slashed benchmark prices for lower-grade nickel ore, providing relief to domestic processors facing higher input costs due to the Middle East conflict.
According to Bloomberg, the world’s largest nickel producer has changed the formula used to calculate its mineral benchmark price, known as Harga Patokan Mineral (HPM), which sets the government-mandated floor price for domestic nickel ore sales.
Under the new formula, the minimum price payable for lower-grade material has been reduced significantly, with the benchmark for ore containing 1.2% nickel almost halved, Bloomberg reports.
The change is expected to provide particular relief to Indonesia’s high-pressure acid leach (HPAL) plants, which process low-grade nickel ore into mixed hydroxide precipitate (MHP), an intermediate product used in electric vehicle batteries.
MHP can also be further processed into refined nickel metal suitable for delivery to London Metal Exchange warehouses.
War drives up costs
Indonesia’s HPAL operators have been grappling with a sharp increase in sulphuric acid costs as the US-Iran war disrupts global sulphur supply chains.
In a March report, S&P Global (NYSE:SPGI) noted that the Middle East accounts for nearly 50% of global seaborne sulphur trade with the ongoing conflict driving costs sharply higher for buyers, including Indonesian HPAL operators.
The cost pressure has already prompted some producers in Indonesia, which accounts for more than half of global nickel output, to consider coordinated production cuts.
Those concerns helped push nickel prices to their highest levels since 2024 in April.
The metal has since retreated amid speculation that Indonesia could ease production quotas to supply new smelting capacity. Significant new HPAL capacity is scheduled to ramp up this year and in 2027, fueling concerns of oversupply.
Nickel is now trading at its lowest levels of the year, at just above US$16,100 ($22,574) per tonne in London.
Turn of events
However, some of that production ramp-up may need to wait. Nickel Industries (ASX:NIC) recently halted the ramp-up of one of its Indonesian processing plants due to water shortages amid a severe drought.
Tsingshan Holding Group also flagged a potential 40% output cut at Indonesia’s biggest nickel complex for similar reasons.
The latest benchmark price adjustment represents a reversal by Indonesia’s Ministry of Energy and Mineral Resources, which changed the HPM formula as recently as April to increase the minimum price of nickel ore.
Those earlier changes reportedly increased costs for HPAL producers by more than US$2,500 per tonne of nickel.
The latest revision could therefore provide some relief to processors as Indonesia balances support for its rapidly expanding downstream nickel industry against the economics of domestic mining.
Write to Jackson Chen at Mining.com.au
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