Nickel smelting costs have double "boosted", CICC optimistic about short-term nickel prices and revaluation of nickel and cobalt companies.

Recently, Zhongjin published a research report stating that the recent changes in Indonesias modified HPM calculation formula and the maintenance shutdown of the Huayue project have accelerated the increase in nickel smelting costs, which are expected to support the rise in nickel prices. Zhongjin stated that due to Indonesia's modification of the HPM calculation formula, the increase in the benchmark price of nickel ore has led to an increase in taxes and fees. The Indonesian Ministry of Energy and Mineral Resources (ESDM) announced the implementation of the revised nickel ore benchmark price (HPM) calculation formula starting from April 15. The key changes include increasing the correction coefficient and adding valuation for cobalt and other accompanying elements. The HPM nickel ore benchmark price is the reference standard for nickel ore taxation in Indonesia. It is estimated that the upward adjustment of this benchmark price will increase the tax costs of wet ore and pyrometallurgical ore by $2.3/ton and $3.3/ton respectively. In the case where nickel ore enterprises fully pass on the tax costs to downstream customers, this will lead to an increase of about $400/ton in the high-cost pyrometallurgical nickel smelting costs, providing support for the rise in nickel prices from the cost side. Furthermore, the increase in sulfur and nickel ore costs has eroded the profits of wet ore processing, resulting in the production reduction of the Huayue project. Zhejiang Huayou Cobalt announced on April 29 that some production lines of the Huayue project will be shut down for maintenance due to factors such as the sharp increase in the price of sulfur raw materials. It is estimated that this will affect 50% of the production capacity of nickel and cobalt at Huayue. The rapid increase in the price of sulfur to $1050/ton after the Middle East conflict, coupled with the upward adjustment of the HPM, has pushed up prices in the wet ore nickel market. Based on current market prices, the profit margin per ton of wet ore nickel, excluding cobalt, has rapidly decreased from over $4000/ton to $1500/ton. The bank believes that the increase in costs has squeezed the profitability of wet ore smelting projects, and profits rely on cobalt by-products. The production reduction of wet ore nickel projects supports the rise in nickel prices. Short-term supply disruptions are pushing up nickel prices, while long-term policy changes in Indonesia support the central price of nickel. In the short term, Zhongjin believes that supply disruptions such as Indonesia tightening nickel ore quotas and sulfur shortages caused by the Middle East conflict are likely to push up nickel prices. In the long term, the upward trend of nickel cost curve is the general trend, and the rising costs of nickel ore, raw materials, energy, etc. are expected to continue to support nickel prices. As Indonesia is the world's largest nickel supply country, increasing the contribution of the nickel industry to the economy is a major policy direction. The bank believes that this will require higher nickel prices to support the central nickel price in the medium to long term. In conclusion, Zhongjin stated that the short-term modifications to the HPM and the reduction in production of wet ore nickel smelting are expected to support the short-term nickel price. Tightening of nickel ore quotas and sulfur shortages are expected to be catalysts for pushing up nickel prices in the future. In the long term, on the supply side, Indonesia, as the world's largest nickel supplier, policy changes support the medium to long-term central nickel price, while on the demand side, the acceleration of the industrialization of solid-state batteries is expected to increase the penetration rate of ternary batteries, reaffirming the positive outlook for nickel and cobalt enterprises. Risks include: Indonesia reducing quotas less than expected; weak downstream demand; supply increased more than expected. Chart 1: HPM benchmark price for Indonesian nickel ore in the first half of April 2026 Data source: Indonesian Ministry of Energy and Mineral Resources, CICC Research Department Chart 2: Market and HPM prices for Indonesian 1.5% grade CIF nickel ore Data source: SMM, CICC Research Department Chart 3: Market and HOM prices for Indonesian 1.2% grade CIF nickel ore Data source: SMM, CICC Research Department Chart 4: Profit margin for wet ore nickel after deducting cobalt in Indonesia Data source: SMM, CICC Research Department Chart 5: Indonesian pyrometallurgical nickel continues to operate at breakeven Data source: SMM, CICC Research Department Chart 6: Cost structure of Indonesian pyrometallurgical nickel smelting Data source: company announcement, CICC Research Department Chart 7: Cost structure of Indonesian wet ore nickel smelting Data source: company announcement, CICC Research Department