The High-Pressure Acid Leach (HPAL) process was supposed to be Indonesia's ticket to downstream nickel dominance — a technology that could convert abundant laterite ore into battery-grade nickel products at competitive cost. But a little-discussed input is now threatening to unravel that narrative: sulfur.
A global sulfur shortage has sent prices for this critical HPAL input surging. Sulfur is essential for producing the sulfuric acid used in the high-temperature, high-pressure leaching process that extracts nickel from laterite ore. As sulfur supply tightens — driven by reduced output from oil and gas desulfurization and constrained elemental sulfur availability — HPAL operators face sharply rising reagent costs that are reshaping the economics of their projects.
Industry estimates now place HPAL breakeven costs at approximately $18,000 per tonne, up significantly from earlier projections of $14,000-15,000 per tonne. At current LME nickel prices of $18,500-19,500 per tonne, margins are wafer-thin. For newer projects still ramping up or operating below nameplate capacity, margins may already be negative. This cost inflation threatens to slow or stall future HPAL capacity additions in Indonesia and elsewhere.
The sulfur shortage is not expected to resolve quickly. Global sulfur supply growth has lagged demand expansion from the fertilizer, industrial, and battery materials sectors. For nickel, this means that the cost floor for class 2 production has shifted structurally higher, not cyclically. HPAL projects that pencil out only at low sulfur prices may need to be reconsidered.
The broader market implication is significant: even as class 1 nickel supply grows, the higher cost of class 2 processing means that the nickel market's marginal cost of production has risen. This provides a durable price floor that macro-driven selloffs may test but are unlikely to breach for sustained periods.
What this means for buyers
With HPAL costs rising to ~$18,000/t, the price floor for nickel products has firmed considerably. Buyers should expect less downside potential in nickel prices, as the marginal producer requires higher prices to remain viable. For battery supply chains dependent on MHP from HPAL operations, this cost pass-through will likely manifest in higher conversion premiums. Long-term offtake agreements should build in sulfur-linked cost-adjustment mechanisms to avoid margin compression.