Key Takeaways:
(P1) Hong Kong-listed Lygend Resources (02245.HK) plunged 7.067% on Tuesday after the company confirmed its operations remain normal following Indonesia's move to raise its benchmark nickel ore price.
(P2) "The company's production and operations are currently maintaining normal operations, with all businesses progressing steadily," Lygend Resources said in a statement to the Hong Kong Stock Exchange, addressing market concerns over the policy shift.
(P3) The statement came after Indonesia’s Energy and Mineral Resources Ministry announced a new pricing formula, effective Wednesday, that increases the price floor for all nickel ore grades. The change also incorporates the value of byproducts such as cobalt into the benchmark for the first time. The move sent LME nickel futures to a one-month high, rising as much as 2.6%.
(P4) The policy change presents a significant headwind for nickel processors in Indonesia, the world's top producer, which are already grappling with rising costs. The new benchmark threatens to squeeze margins, particularly for High-Pressure Acid Leach (HPAL) plants that process low-grade ore for the electric vehicle battery market.
Indonesia's vast nickel processing industry, responsible for over half of global output, now faces a dual challenge. Tighter mining quotas have already driven the cost of high-grade ore above government benchmarks. Now, the floor price for lower-grade material is set to rise, directly impacting HPAL operators.
These processors were already under strain from a sharp increase in the price of sulfur, a critical reagent, due to supply disruptions from the conflict in the Middle East. Lygend, a major player with significant HPAL operations in Indonesia, stated it has taken a "proactive approach" to policy impacts and implemented measures to "diversify risks and stabilize operations." The company's short-selling ratio stood at 6.538% at the close of trading.
The Indonesian government's move is part of a broader effort to increase state revenue as it faces budgetary pressures from higher oil prices linked to the Iran war. By hiking the nickel ore benchmark, the resource-rich nation aims to capture more value from its mineral wealth. The benchmark prices, which set the minimum smelters can pay miners, are adjusted twice a month based on LME prices.
This article is for informational purposes only and does not constitute investment advice.
