UBS: Prioritize copper and gold amid sulphur price volatility in Indonesian metals
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UBS: Prioritize copper and gold amid sulphur price volatility in Indonesian metals
The report argues that China's suspension of sulphuric acid exports and tensions in the Middle East have pushed up sulphur prices; within Indonesian metals, copper and gold benefit more clearly, while nickel, especially HPAL-related names, faces supply and sentiment pressure.
- UBS reiterates its preference order as integrated copper > gold > selected nickel stocks, with the bottom-up ranking for Indonesian metals as copper (AMMN) > gold > nickel (INCO > ANTM > MBMA > NCKL).
- China sulphur prices rose to about US$950/t, up 84% from December 2025 and 164% year on year; Indonesian sulphur prices also rose to US$910/t, indicating tighter supply.
- At a sulphur price of US$950/t, UBS estimates AMMN's 2026E EPS could get a 7% uplift from sulphuric acid credits in the copper business.
- Without sulphur supply, HPAL plant buffers could support roughly 1.5 months of operations, but both new and existing HPAL operations may stall in 2H26; related MHP supply accounts for about 18% of 2026E global supply.
Report interpretation
Overview
This report focuses on equity allocation in Indonesia's metals sector against a backdrop of tight sulphur supply and sharp price volatility. UBS believes that while high sulphur prices may not immediately trigger a broad supply response, they will constrain some MHP supply and create both sentiment and fundamental pressure on nickel stocks with high HPAL exposure. By contrast, copper stocks benefit from copper prices and sulphuric acid credits, while gold stocks benefit from safe-haven demand supported by continued tensions in the Middle East.
Core views
The core view is that 'not all metals are created equal': in a sustained high-sulphur-price or zero-sulphur-supply scenario, the supply-side damage to copper and gold is limited and the benefits are clearer, while the nickel chain is more complex. On copper, many copper/gold operations do not rely on sulphur, and AMMN may also benefit from sulphuric acid credits. On gold, tensions in the Middle East support its safe-haven appeal. On nickel, HPAL plants can rely on buffers in the near term, but if sulphur shortages persist, operations may be disrupted in 2H26; nickel stocks may also face negative sentiment, regulatory pressure, and changes in ore premiums.
Analysis framework
The report uses scenario analysis and bottom-up stock comparison: it first tracks spot sulphur prices in China and Indonesia, then assesses the impact of a zero-sulphur scenario on MHP, HPAL, nickel sulphate, copper, gold, and nickel miners' profits, and finally maps those effects to the relative preference among Indonesian metals stocks. At the stock-specific valuation level, UBS says its mining coverage mainly uses SOTP, with DCF and mine-life assumptions applied to projects.
Methodology notes
Sum-of-the-parts valuation
UBS says its mining stock coverage uses SOTP valuation, valuing each project using DCF and expected mine life, and applying an execution-risk discount to certain JV projects.
Zero-sulphur supply scenario
The report uses no-sulphur supply or persistently volatile sulphur supply as a stress scenario to assess the potential impact on HPAL shutdowns, MHP supply, LME nickel prices, copper prices, and gold prices.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- AMMNCopper and gold exposure, UBS Buy
- Strengths
- Benefits from high copper prices and sulphuric acid credits; 2026E EPS is expected to rise by 7% at a sulphur price of US$950/t.
- Weaknesses
- Copper smelter ramp-up, Elang feasibility study, financing costs, and natural disasters create downside risk.
- Comparison
- Ranks first in UBS's Indonesian metals preference order, ahead of gold and nickel stocks.
- Risks
- Copper and gold prices below expectations, energy prices above expectations, slower-than-expected smelter ramp-up, and rising financing costs.
- GoldSafe-haven asset benefiting from Middle East tensions
- Strengths
- Continued tensions in the Middle East could lift gold prices, making it a relative beneficiary in a zero-sulphur scenario.
- Weaknesses
- Gold mining activity may be affected by weather, grade, and costs.
- Comparison
- Placed after copper and before nickel in the preference order.
- Risks
- Higher gold royalties, export taxes, domestic market obligations and price caps, adverse weather, lower-than-expected grades, and higher energy and financing costs.
- INCOSelected nickel stock, UBS Buy
- Strengths
- LME-linked matte contributes about 50% of 2026E EBITDA and benefits relatively in a no-sulphur scenario; increased optionality from the Q426E HPAL JV stake can defer HPAL earnings exposure.
- Weaknesses
- Lower saprolite premiums offset part of the advantage.
- Comparison
- Preferred over ANTM, MBMA, and NCKL among selected nickel stocks.
- Risks
- Nickel prices below expectations, tighter energy supply pushing up costs, downstream project delays, higher interest rates, and ramp-up failures at HPAL or FeNi projects.
- ANTMSelected nickel/gold stock, UBS Buy
- Strengths
- No HPAL plant, so direct exposure to sulphur shortages is limited.
- Weaknesses
- Saprolite accounts for about 40% of 2026E EBITDA, and lower saprolite premiums will dilute ROE.
- Comparison
- Ranks behind INCO but ahead of MBMA and NCKL in the nickel preference order.
- Risks
- Gold and nickel prices below expectations, energy prices above expectations, equity returns below expectations, slower-than-expected growth in domestic gold supply, low-IRR national service projects, and rising financing costs.
- MBMANickel and sulphur-related name, UBS Buy
- Strengths
- A net sulphur long in 2026E, with sulphuric acid sales offsetting sulphur demand.
- Weaknesses
- Turns into a net sulphur short in 2027E, increasing exposure to subsequent sulphur supply conditions.
- Comparison
- Ranks below INCO and ANTM but above NCKL in the nickel preference order.
- Risks
- IRA-related risks, nickel substitution technologies, carbon tax reinstatement, transfer pricing, nickel export taxes and bans, FX, exploration, regulatory, and natural disaster risks.
- NCKLNickel stock with high HPAL and saprolite exposure, UBS Buy
- Strengths
- Has both HPAL and saprolite business exposure.
- Weaknesses
- High 2026E EPS exposure to HPAL and saprolite, at 36% and 26% respectively, makes it the most vulnerable in a sulphur shortage scenario.
- Comparison
- Ranks last in UBS's Indonesian metals preference order.
- Risks
- Nickel prices below expectations, rising energy costs, failure to convert ore resources into reserves, constrained ore supply, slower-than-expected ramp-up or higher-than-expected costs at new HPAL projects, transfer pricing, and regulatory volatility.
Key data
- China sulphur pricesabout US$950/tUp 84% from December 2025 and 164% year on year, driven by China's planned halt to sulphuric acid exports from May 2026 and tensions in the Middle East.
- Indonesia sulphur pricesUS$910/tConverging with China prices, indicating tighter supply in Indonesia as well.
- AMMN 2026E EPS impact+7%At a sulphur price of US$950/t, sulphuric acid credits from the copper business are expected to lift AMMN's 2026E EPS.
- HPAL buffer periodabout 1.5 monthsChannel checks suggest that, without new sulphur supply, many HPAL plants could still operate for about 1.5 months on buffer inventories.
- MHP supply impact18% of 2026E global supplyIn a no-sulphur scenario, the MHP shortfall caused by HPAL shutdowns could affect 18% of 2026E global supply.
- Cash margins estimateUS$2.0k/US$575/US$2.9k per tonneEstimated cash margins for integrated HPAL, non-integrated HPAL, and NiSO4 at a sulphur price of US$950/t.
- Demand destruction sulphur price thresholdsUS$1,160/US$1,010/US$1,250 per tonneThese are the sulphur price levels at which demand destruction may occur for integrated HPAL, non-integrated HPAL, and NiSO4, respectively.
Impact & implications
The investment implication is that, when sulphur supply remains tight, portfolios should tilt toward copper and gold rather than broadly increasing nickel exposure. AMMN benefits from copper prices and sulphuric acid credits, while gold benefits from continued Middle East risk; nickel stocks may be pressured by short-term negative sentiment, but INCO and ANTM, because of fundamentals and lower ROE sulphur exposure, are viewed as selective entry opportunities. MBMA is relatively defensive in 2026E as a net sulphur long, but turns net short in 2027E; NCKL, with higher HPAL and saprolite exposure, faces a larger negative impact.
Risks
- Persistent sulphur supply volatility could stall HPAL operations and constrain MHP supply.
- Nickel stocks may be pressured by short-term negative sentiment, and sentiment effects may outweigh fundamentals.
- The Indonesian nickel industry faces risks including nickel prices below expectations, stronger Indonesian supply, successful NPI-to-matte conversion, mining permit delays, faster HPAL expansion, greater use of scrap, lower Chinese metals demand, and EV supply being affected by chip shortages.
- The gold industry faces risks from higher royalties, export taxes, domestic market obligations, weather, grades, mining delays, energy costs, and financing costs.
- At the stock level, risks also include project ramp-up, financing costs, regulatory changes, natural disasters, FX, and transfer pricing.
What to watch
- The actual implementation of China's halt to sulphuric acid exports from May 2026 and the resulting changes in global sulphur trade flows.
- Whether tensions in the Middle East ease and the impact that has on sulphur supply and gold prices.
- Whether Indonesian sulphur prices continue to converge with China prices or break above US$950/t.
- The rate at which HPAL plant buffer inventories are consumed and whether shutdowns emerge in 2H26.
- Whether the MHP supply gap begins to affect LME nickel prices and nickel sulphate margins.
- Whether Indonesia delays or revises nickel-related windfall taxes and other regulatory policies.