Indonesia's new HPM policy for nickel ore has been in effect for one full week since its official implementation on April 15. According to Mysteel survey, the new policy fundamentally revised the calculation method for the nickel ore benchmark price -- the correction factor for 1.6% grade ore was raised from 17% to 30%, and for the first time, associated elements such as cobalt, iron, and chromium were included in the pricing system. Under theoretical calculations, the new HPM price has risen significantly compared to previous levels.
Source: Mysteel
I. Original contracts executed at original prices
Mysteel's survey found that existing contracts were not directly executed under the new standards but continued to be settled based on the benchmark price and premium of the first half of April. According to industry practice, nickel ore contract settlements are based on the bill of lading date at the loading port -- cargo loaded before April 15, even if it arrived after the new policy took effect, would still be settled using the old HPM formula. Therefore, prices, premiums, and settlement methods for old contracts all remained unchanged, with no retroactive price increases in the short term due to the new policy.
II. Premiums difficult to determine under the new HPM policy
Currently, most new contracts between smelters and mines are still under negotiation. The core issue is that the new HPM formula incorporated cobalt, iron, and chromium into the pricing, but for nickel ore of the same grade, the content of associated elements varied significantly, making it difficult to uniformly quantify the impact on the benchmark price. For example, for ores with cobalt content of 0.05% versus 0.10%, the HPM price difference calculated under the new formula could reach several US dollars. This makes it difficult for buyers and sellers to reach a consensus on a uniform premium, and the traditional pricing model of "HPM + fixed premium" was facing challenges under the new policy.
Nevertheless, some smelters and traders have already begun exploring new contract structures. Mysteel survey found that some companies adopted a dual-track model combining FOB and CIF contracts. The FOB contract is used to determine the tax base for royalty payments (under Indonesia's regulations, if the contract price fell below the HPM, taxes are still levied based on the HPM), while the CIF contract reflects the actual transaction cost. This arrangement, to a certain extent, insulates trade pricing from the direct impact of HPM volatility, providing a workable operational path during the policy transition period.
It is worth noting that the impact of the new HPM formula on nickel ore used for hydrometallurgical processing (limonite) is far greater than on ore used for pyrometallurgical processing (saprolite). This is because limonite typically has a higher cobalt content (up to 0.05%-0.15%), which would result in significant cobalt valuation under the new rules. In contrast, saprolite has a lower cobalt content, so the impact is relatively limited. As a result, HPAL projects may have greater pressure because of rising feedstock costs, which could later transmit to the MHP and nickel sulfate segments.
In the short term, the pricing model for new nickel ore contracts remain under discussion. Whether the market can form a new consensus of "benchmark price + uniform premium" or shift to differentiated pricing on a "case-by-case basis" is expected to directly impact the transmission path of subsequent nickel ore costs. Additionally, the actual testing standards and dispute resolution mechanisms for associated elements such as cobalt and iron would need further clarification. Mysteel will continue to track the implementation of new nickel ore contracts in Indonesia.
Written by Cora Ji, jiruyan@mysteel.com
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