The Indonesian government is currently considering the establishment of indices for domestically processed nickel, similar to the benchmark coal price (HBA). The Indonesian Nickel Prices Index will become an instrument for buying and selling nickel in the domestic market, as Coordinating Minister for Maritime and Investment Luhut Binsar Pandjaitan said on Monday, May 8, 2023.
The Coordinating Maritime Affairs and Investment Ministry and relevant stakeholders are currently reviewing methods offered by several consultants like Argus Media.
By creating the Indonesian nickel indices, the government and domestic nickel players will have their own reference and no longer rely on the London Metal Exchange (LME), as the LME price indices are largely driven by high demand for first-class nickel, which is the raw material for electric batteries.
Meanwhile, nickel production in Indonesia is largely focused on grade two nickel, specifically nickel pig iron (NPI) and ferronickel (FeNi) used in stainless steel production. Consequently, nickel mining companies in Indonesia are subject to higher royalties.
Nickel miners believe that Indonesian nickel indices can provide an overview of real prices affected by royalties and provide a solid reference for nickel prices in the future.
Received mixed responses
The Indonesian nickel benchmark price is currently regulated in the ESDM Ministerial Regulation No 11/2020. It led miners to pay higher royalties, up to 40 percent, due to the difference between the actual selling price of ferronickel from LME, which is used as a reference for determining royalty rates.
In relation to this matter, upstream nickel companies urge the government to establish Indonesian nickel indices following the widening disparity between global nickel prices and domestic royalties.
“At the moment, Indonesia can only produce ferronickel, not battery raw materials. As a result, the prices of ferronickel traded between miners and smelters is far below the LME, which is less than 60 percent this year,” Indonesian Mining Experts Association (Perhapi) secretary general Resvani said on Tuesday, May 9, 2023.
Resvani hoped that the nickel indices should be able to accommodate all parties, whether it is mining companies that integrate with smelters or mining companies without smelters, as well as smelter companies without mining operations, to ensure fairness.
Effects in investments
On the other side, smelter industry players warned that the index could affect future financial and investment plans. Indonesia Smelters Association (AP3I) secretary general Haykal Hubies argued that the indices would only bloat the production cost structure of downstream companies. “[The indices] will affect the company’s profit or change financial calculations in the next few years,” he said.
Therefore, they urged the government to accommodate real-world transactions in the sector amid plans to intensify the downstream nickel industry.
