The continuously falling nickel prices are about to usher in a major rebound? Indonesian mining companies may reduce production due to increased tax pressure.

In order to alleviate the huge financial pressure caused by President Prabowo Subianto's ambitious spending plans, Indonesia is planning to increase the royalties paid by mining companies to enrich public finances. According to a public consultation document released last weekend, the Ministry of Energy and Mineral Resources is considering imposing higher taxes on various types of mineral production such as copper and coal. Previously, fixed tax rates were imposed on nickel mines, but in the future, the rates may be dynamically adjusted as market prices rise. It is worth noting that at a time when Indonesia is struggling to cope with the massive expenses incurred by Prabowo's signature policy expenditures, including free school lunch programs and the establishment of the Danantara national investment fund, various departments in Indonesia have been asked to cut their budgets to support these billion-dollar fiscal policies after the proposed increase in the value-added tax was downplayed. For the Indonesian mining industry that supports Southeast Asia's largest economy, potential tax hikes come at a difficult time for the industry. Benchmark prices for nickel and coal, the country's two major export pillars, have fallen to multi-year lows, forcing some producers to consider cutting their actual production. In the nickel mining industry, the current fixed ore production tax of 10% may be replaced by a floating tax rate of 14%-19%, which will be determined based on benchmark prices set by the Indonesian government. Taxes on nickel iron and other products produced by smelters will also be increased, and cost pressures have already led some factories to reduce production. If Indonesian nickel miners choose to reduce their production in response to the tax hike, it will ultimately lead to a significant decrease in the production of this battery metal, thereby boosting nickel metal prices, which have plummeted significantly since 2023 due to oversupply. Under the catalyst of large-scale oversupply, the prices of lithium, nickel, and cobalt, the three major battery metals, have continued to plummet since 2023. Strict measures to limit production capacity on the supply side will be the key factor in completely reversing the price of battery metals in 2025. In 2023, trading prices for lithium, nickel, and cobalt collapsed across the board, followed by a continued decline in 2024. The "dream of electrification" of the three major battery metals focusing on electric vehicles has clearly turned into an inescapable "nightmare." Due to cost curves eroded by low prices, Indonesian government officials have shown signs of active supply discipline, limiting mining quotas and suspending the approval of new mining processing plants. Market expectations suggest that the scale of production cuts this year is likely to be upgraded. According to the metal trading prices of the London Metal Exchange (LME), nickel prices have plummeted by over 50% since the beginning of 2023, almost halving. Nickel prices have risen slightly this year amid market expectations of production cuts by Indonesian mining companies and are currently hovering around $16,500 per ton, but compared to the end of 2022, nickel prices were hovering around $29,880 per ton. Analyst Ryan Davis from Citigroup, a major Wall Street firm, stated in a report released on Monday: "The increase in royalties may impact Indonesia's dominant position in downstream industries. In a environment of intense price fluctuations, generally lower profit margins may trigger larger-scale adjustments in supply of nickel, copper, and other metals." "Furthermore, royalties for tin, copper, and gold production will also be increased. The impact on Indonesian coal companies will vary greatly depending on the type of permit. However, according to Citigroup's Davis analysis report, actual tax rates for some mining companies, such as PT Adaro Andalan Indonesia, may not increase, but decrease. Indonesia remains the largest nickel mining supplier in the world. According to data from the U.S. Geological Survey (USGS), in 2022, Indonesia's nickel reserves accounted for approximately 20.6% of the world's total reserves, ranking first in the world. In terms of production, Indonesia's nickel production in 2022 reached 1.6 million tons, accounting for 48.8% of the global total production. If nickel mining output from the world's largest nickel mining producing and exporting country continues to be lower than market expectations, it may bring long-awaited significant upward risks to nickel metal prices.