Indonesia nickel makers trim battery-feed output as sulphur squeeze bites

A sulphur shortage, attributable to a disruption in supply caused by the Iran war, has forced several Indonesian nickel processors to trim output by at least 10% since last month, three sources familiar with the matter said.

The cuts have hit plants that use sulphuric acid to process nickel ore into mixed hydroxide precipitate (MHP), a feedstock used in electric vehicle battery materials, in one of the clearest signs yet that the US-Israeli war on Iran is hitting mining supply chains, though output remains relatively high.

Affected plants include facilities backed by Chinese firms like Huayou Cobalt, Lygend Resources and Tsingshan Group, the sources said.

The companies did not immediately reply to requests for comment.

Several of the plants had been running above capacity due to wide margins and high demand, and the curbs have trimmed output to nameplate levels, the sources said. That means that while Indonesia’s overall nickel output remains high, MHP supply is tightening.

Middle East a big supplier

The Middle East accounts for about a quarter of global sulphur supply and provides about 75% to 80% of Indonesia’s supply, according to Arif Perdana Kusuma, chairman of FINI, Indonesia’s nickel smelters association. The disruptions have sent prices sharply higher and squeezed margins at Indonesian MHP producers, triggering the output cutbacks.

Spot sulphur prices delivered to Indonesia have risen above $800 a metric ton, one trader said, with some cargoes sold as high as $1,000 – compared with around $500 before the war started.

The sources declined to be named as they were not authorized to speak to the media.

Search of alternatives

Kusuma said no high-pressure acid leach (HPAL) nickel refiners had been forced to halt MHP production because of the sulphur disruptions, but inventories at several firms were running low.

“In some locations, current stocks are only sufficient to last until May, or possibly even earlier,” he said, without saying whether plants were curbing output.

Some producers have begun seeking alternative sulphur supplies, but that was difficult because available volumes were smaller and shipping distances longer. Others were trying to import sulphuric acid instead, which poses logistical challenges and requires import permits, Kusuma said.

Sulphur now accounts for around 30% to 35% of HPAL operating costs, he said, up from 25% typically.

Reuters reported last month that some Indonesian plants had inventories lasting only one to two months, leaving production cuts likely by April if supply did not recover.

The squeeze comes as Indonesia’s nickel sector grapples with higher ore prices after Jakarta tightened mining output. Indonesia has said 2026 nickel mining quotas would be cut to 250 million to 270 million wet metric tons, down from 379 million in 2025.

Nickel ore prices, meanwhile, are set to rise after Indonesia revised a formula used to determine the floor price for calculating tax and royalties of nickel ore sales, which will come into effect on April 15 and further pressure producers’ margins.

(By Reuters China C&E team and Fransiska Nangoy in Jakarta; Editing by Tony Munroe and Thomas Derpinghaus)