UBS: Indonesian Nickel Policy Disruptions Do Not Undermine Structural Profit Growth

Overview

This report focuses on Indonesia’s nickel sector, concluding that despite a series of volatile government policies introduced since early 2026—including a new ore pricing benchmark (HPM), planned royalty hikes, and potential export tariffs—the structural profit growth thesis remains intact. UBS’s multi-scenario sensitivity analysis reveals that even after accounting for implemented and potential policies, covered nickel producers’ 2026 net profit after tax (NPAT) forecasts have been revised upward. The report argues that regulatory-driven supply constraints, an escalating cost curve, and a robust project pipeline will continue to support elevated nickel prices and sector-wide earnings expansion.

Core views

Earnings growth logic remains intact and has been upgraded: The report counters excessive market concerns over policy risks. Through quantitative modeling of variables such as the new HPM, royalties, a potential 5% export tariff, and cost-sharing mechanisms between miners and smelters, results show net profit growth for Indonesia’s nickel sector under various policy combinations. The firm forecasts 91%, 33%, and 19% YoY net profit growth for 2026, 2027, and 2028, respectively, driven by strong production growth, low-cost integrated supply chains, and regulatory-induced supply tightness. Dual supply-side constraints support a price floor: Indonesia’s nickel supply faces both 'administrative' and 'physical' tightening. On one hand, mining quotas (RKAB) have been cut and new smelter licensing restricted, effectively capping total output. On the other, sulfur—a critical input for HPAL processing—remains in short supply. UBS’s proprietary port tracking data shows sulfur inventory days at several industrial parks have fallen to warning levels, with shortage risks likely intensifying in H2 2026 as new capacity ramps up. This supply inelasticity, combined with record-high ore and sulfur prices lifting the cost curve, provides a solid price floor for nickel. Profit reallocation along the value chain and policy博弈: The new HPM benchmark sets laterite nickel ore prices above actual transaction levels, meaning miners are absorbing smelters’ cost pressures, shifting profits from smelting to mining segments. Meanwhile, HPAL operations are experiencing temporary losses due to soaring sulfur costs, while ferronickel (NPI) smelters maintain relatively resilient margins thanks to stronger demand. The report suggests that if supply chain losses threaten state fiscal revenues, regulators may adjust policies (e.g., easing quotas or reducing taxes) to relieve industry pressure—a potential positive catalyst. Stock differentiation and export tariff impact: If implemented, export tariffs would hit low-value-added products (e.g., NPI/FeNi) hardest, followed by matte/MHP, with nickel sulfate and pure nickel least affected. Under this framework, Harita Nickel (NCKL) faces the highest tariff risk due to its export structure, while Vale Indonesia (INCO) and Aneka Tambang (ANTM)—with superior product mix and integration—are preferred investment choices.

Analysis framework

The report employs a dual analytical framework combining 'policy scenario sensitivity analysis' and 'high-frequency physical data validation.' First, it builds a multi-variable financial model incorporating HPM, royalties, export tariffs, and cost-sharing mechanisms to quantify the net impact of different policy combinations on corporate net profits, leading to the core conclusion that 'policy noise does not override earnings upgrades.' Second, it leverages UBS’s proprietary Live Port Tracker to monitor sulfur/sulfuric acid inflows and inventory days at major industrial parks, and correlates this with nickel product payability trends to validate supply tightness and cost pressures at the physical level—not just through macro narratives. This approach of financializing policy variables and high-frequency fundamental tracking enhances the credibility of the conclusions.

Methodology notes

• Industry/Value Chain Analysis FrameworkCost curve analysis

  Rising cost curve supports price floor

  The report notes that record-high nickel ore and sulfur prices have shifted the industry-wide cost curve upward, pushing some high-cost producers into losses. In commodity pricing, when marginal producers fall below cash cost, supply contraction naturally creates a price floor—a core method for identifying cyclical commodity bottoms.

• Event Arbitrage & Behavioral FinanceExpectation Gap / Expectation Management

  Quantifying policy uncertainty through scenarios

  Instead of qualitatively discussing policy risks amid market panic, the report translates qualitative policies like HPM and tax rates into concrete financial assumptions (e.g., 5% export tariff, HPM price gap) and simulates their net impact on profits across multiple scenarios. This converts vague 'policy risk' into a quantifiable 'earnings volatility range,' helping investors uncover fundamental truths obscured by sentiment.

• Valuation MethodSOTP (Sum-of-the-Parts) Valuation

  SOTP valuation for mining companies

  For diversified miners with multiple mines, smelters, and metal products, the report uses Sum-of-the-Parts (SOTP) valuation—applying DCF to each asset separately and summing the results. This is necessary because projects vary significantly in lifespan, cost, and risk, making aggregate PE multiples misleading; SOTP captures individual project contributions more accurately.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Vale Indonesia (INCO.JK)

  Top Buy recommendation, benefits from high nickel prices and product premium

  Strengths

  High integration level; relatively insulated from export tariff downside; significant earnings upside under HPM (+37%)

  Weaknesses

  Execution risk in downstream project ramp-up

  Comparison

  Preferred over ANTM due to higher sensitivity to nickel prices and favorable policy exposure

  Risks

  Nickel price decline, rising energy costs, HPAL project delays

• Aneka Tambang (ANTM.JK)

  Secondary Buy pick, dual engine of gold and nickel

  Strengths

  Business diversification minimizes exposure to single-commodity policy shocks (export tariff impact only -1.4%)

  Weaknesses

  Some projects have lower IRR and may serve national strategic interests

  Comparison

  More defensive than NCKL and MBMA, though less earnings elasticity than INCO

  Risks

  Declines in gold/nickel prices, slowing domestic gold supply growth, rising financing costs

• Harita Nickel (NCKL.JK)

  Buy-rated but lower priority due to highest export tariff exposure

  Strengths

  Attractive valuation (2026E PE 5.0x), ROE as high as 30.5%

  Weaknesses

  High export share of NPI/MHP makes it most vulnerable to tariffs (-11.6%); extremely low sulfur inventory on Obi Island

  Comparison

  Significantly higher policy risk than INCO and ANTM

  Risks

  Implementation of export tariffs, sulfur supply disruption, HPAL project cost overruns

• Merdeka Battery Materials (MBMA.JK)

  Buy-rated, high-beta play on nickel prices

  Strengths

  Highest sensitivity to LME nickel price (+4.2%); 2026E EPS growth forecast at 591%

  Weaknesses

  IRA compliance risk, transfer pricing risk

  Comparison

  High offensive potential but weaker policy resilience than ANTM

  Risks

  Technology substitution, carbon tax reinstatement, FX volatility

Key data

• 2026E Net Profit Growth for Indonesian Nickel Sector91% YoYDespite policy disruptions, 2026 earnings are expected to rebound strongly
• 2027E Net Profit Growth for Indonesian Nickel Sector33% YoYStructural growth continues
• Sulfur Inventory Buffer (HPAL)Approx. 50 daysUBS Live Port Tracker shows current inventory levels; further shortages likely in H2 2026
• Export Tariff Sensitivity (INCO)-4.2%Each 1% increase in export tariff reduces Vale Indonesia’s 2026E net profit by 4.2%
• Nickel Price Sensitivity (MBMA)+4.2%Each 1% rise in LME nickel price increases Merdeka Battery’s 2026E net profit by 4.2%

Impact & implications

Current policy volatility in Indonesia’s nickel sector represents short-term noise rather than a long-term headwind. Profit allocation is rebalancing from smelters to miners, and cost pressures may prompt the government to introduce more constructive industrial policies. For investors, this means avoiding overreaction to individual policy events and instead focusing on leading companies with self-sufficient resources, diversified product portfolios, and superior cost control. Additionally, sulfur supply security will become a key differentiator for alpha generation; firms with stable sulfur sources or integrated infrastructure will command premium valuations.

Risks

• Nickel prices below expectations due to weak global metal demand
• Indonesian nickel supply exceeding forecasts or RKAB quotas being relaxed too quickly
• Successful conversion of NPI to matte leading to oversupply
• HPAL projects coming online faster than expected
• Weaker-than-expected Chinese EV demand or chip shortages impacting EV production
• Persistent sulfur shortages causing prolonged HPAL plant shutdowns
• Government imposition of windfall taxes or profit-sharing mechanisms eroding corporate earnings

What to watch

• Specific details and implementation timelines for export tariffs, windfall taxes, and profit-sharing schemes from the Indonesian government
• RKAB quota approval progress and any signs of policy relaxation
• Sulfur and sulfuric acid import arrivals and inventory changes at major industrial parks
• Evolution of the gap between HPM benchmark prices and actual market transaction prices
• Operating rates and margin recovery of HPAL smelters