Nickel Industries' (ASX:NIC) rotary kiln electric furnace (RKEF) operations in Indonesia might swing to loss-making on the pass-through of the implementation of the new Harga Patokan Mineral (HPM) benchmark price formula, Jefferies said in a Monday note.

Regulatory changes and supply chain disruption may re-cut the nickel cost curve, the note said.

However, Nickel Industries' cost-curve position and integrated model provide structural insulation against industry-wide margin pressure, which the investment management firm believes would ultimately drive a supply-led recovery in nickel prices.

At Hengjaya, implementation of the new HPM price formula, including the value of by-product credits, will increase the minimum saprolite sales price to around $60 per wet metric tonne from $29.90 per wet metric tonne and the minimum limonite sales price to around $47 per wet metric tonne from $19.90 per wet metric tonne.

Market commentary suggests increased prices are not being passed downstream. If the costs are imposed at a whole industry level, this will increase HPAL cash costs by around 40%, while having an around 5% to 10% impact on RKEF operations.

The investment firm assigned Nickel Industries a buy rating and a price target of AU$1.20 per share.