HPAL and vertical integration reshape nickel sulfate supply — but costs are rising

High-pressure acid leaching (HPAL) technology has transformed Indonesia into the dominant global supplier of battery-grade nickel intermediate products over the past five years. The process converts low-grade laterite ore into mixed hydroxide precipitate (MHP) — a preferred feedstock for nickel sulfate production among Asian battery manufacturers. (FACT: IndoAlam, May 16, 2026) HPAL plants now process high volumes of limonite ore to produce MHP at costs that have historically undercut competing technologies, making Indonesia's integrated nickel facilities the low-cost benchmark for EV battery supply chains.

The cost advantage is now under pressure from multiple directions. The Platts-assessed MHP CIF North Asia all-in price reached $15,806 per metric ton on April 29, climbing 17.9% from the start of 2026. (FACT: S&P Global, May 1, 2026) Two factors are driving the increase: first, Indonesia's 34% ore quota cut for 2026 has tightened raw material supply, with Vale Indonesia warning its approved quota is only 30% of what the company requested for new HPAL plants. (FACT: CarbonCredits, May 7, 2026) Second, the Strait of Hormuz closure has created a sulfur supply crunch that directly affects HPAL economics — sulfuric acid is the primary reagent in the leaching process, and reduced global sulfur availability has increased acid costs across Indonesian HPAL operations. (FACT: CarbonCredits, May 7, 2026)

Vertical integration is the industry's structural response. Indonesian suppliers have consolidated mining, HPAL processing, and in some cases cathode precursor manufacturing under single corporate umbrellas, creating a vertically integrated nickel ecosystem that supplies both stainless steel and battery markets. (FACT: CarbonCredits, May 7, 2026) Forward-looking battery manufacturers increasingly secure long-term supply agreements with established HPAL producers, recognizing that spot market purchases cannot satisfy future demand as EV adoption accelerates. (FACT: IndoAlam, May 16, 2026)

The INSG balance has shifted from a 283,000-tonne surplus in 2025 to a 32,000-tonne deficit in 2026, reflecting the combined impact of Indonesia's quota cuts, HPAL input cost escalation, and sustained battery-grade demand. (FACT: Discovery Alert, May 16, 2026) LME nickel has rallied 37% from late December 2025 to April 2026. (FACT: Discovery Alert, May 16, 2026) The market is not treating this as a passing inconvenience — new HPAL projects may face delays from escalating costs, according to Arief Tiammar of Prometindo, the Indonesian metallurgical professionals association. (FACT: S&P Global, May 1, 2026)

The number that matters for your business: A battery cathode manufacturer sourcing 5,000 tonnes/year of nickel sulfate from MHP feedstock has seen input costs rise approximately $2.3 million YTD based on the 17.9% MHP price increase alone — before accounting for higher conversion costs from elevated sulfuric acid prices. An integrated HPAL-nickel sulfate producer with 40,000t/year capacity that was profitable at pre-2026 acid prices now faces margin compression from the sulfur supply shock. HPAL operators remain viable as long as MHP payables remain high despite higher production costs. (FACT: Electra Battery Materials via S&P Global, May 1, 2026)