Recent adjustments to Indonesia's HPM calculation formula and production halts at the Huafei project have accelerated the rise in nickel smelting costs, which is expected to support an increase in nickel prices. The revision of Indonesia's HPM formula has led to higher benchmark nickel ore prices, resulting in increased tax obligations. Indonesia's Ministry of Energy and Mineral Resources confirmed that the revised HPM calculation formula would take effect from April 15, with key changes including an upward adjustment of the correction factor and the addition of pricing for associated elements like cobalt. As the HPM benchmark price serves as the reference for nickel ore taxation in Indonesia, estimates indicate this adjustment could raise tax costs for hydrometallurgical ore and pyrometallurgical ore by USD 2.3 per ton and USD 3.3 per ton, respectively. If mining companies fully pass these tax costs downstream, the production cost for high-cost pyrometallurgical nickel could increase by approximately USD 400 per ton, providing cost-side support for rising nickel prices.

Additionally, rising sulfur and nickel ore costs are eroding profits in the hydrometallurgical sector, leading to production cuts at the Huafei project. On April 29, Huayou Cobalt announced that due to comprehensive factors including a sharp increase in the price of auxiliary material sulfur, production lines at the Huafei project would undergo maintenance shutdowns, which are expected to reduce nickel and cobalt output from the project by 50%. Following conflicts in the Middle East, sulfur prices surged to USD 1,050 per ton, while the HPM increase has driven up market prices for hydrometallurgical nickel ore. Based on current market prices, the profit margin per ton of hydrometallurgical nickel ore after cobalt deduction has rapidly declined from a peak of over USD 4,000 per ton to around USD 1,500 per ton. The rising costs are compressing profitability for hydrometallurgical projects, making them more reliant on cobalt by-product revenues, and production cuts are expected to support nickel price increases.

Short-term supply disruptions are likely to push nickel prices higher, while medium to long-term policy changes in Indonesia are expected to support the price floor. In the near term, Indonesia's tightening of nickel ore quotas and sulfur supply shortages resulting from Middle Eastern conflicts are seen as two major supply-side factors that may drive nickel prices upward. Over the medium to long term, the rising nickel cost curve appears inevitable, with increases in ore, auxiliary material, and energy costs expected to continuously support nickel prices. As the world's largest nickel supplier, Indonesia's policy focus on enhancing the nickel industry's economic contribution will likely require higher nickel prices, thereby supporting the medium to long-term price floor.

In summary, short-term factors such as the HPM revision and production cuts in hydrometallurgical nickel are expected to support near-term nickel prices, while future tightening of nickel ore quotas and sulfur supply constraints may act as catalysts for further price increases. In the long run, supply-side developments, including policy changes in Indonesia, will support the medium to long-term nickel price floor, while accelerating solid-state battery industrialization is expected to boost the penetration of ternary batteries, reaffirming the positive outlook for the revaluation of nickel and cobalt companies.

Risks include potential shortfalls in Indonesia's quota reductions, weaker-than-expected downstream demand, and higher-than-anticipated supply increases.