Indonesia's nickel processing sector faces a new threat: a sulfur squeeze. Indonesia sources approximately 75% of its sulfur from the Middle East, where Strait of Hormuz shipping disruptions have cut supply. China's simultaneous halt on sulfuric acid exports has compounded the shortage, creating a two-pronged supply shock.
High-Pressure Acid Leach (HPAL) plants, which produced 450,000 tonnes of mixed hydroxide precipitate (MHP) in 2025 — representing over 10% of global nickel production — are the most exposed. Macquarie Bank estimates HPAL break-even costs are now as high as $18,000/t, up significantly from historical levels.
Reuters reports that combined with rising sulfur prices, these input cost pressures are starting to affect production planning. Another 100,000 tonnes of new HPAL capacity is due to come online in 2026, but this capacity may face delays if sulfur supplies remain constrained.
LME nickel hit a two-year high of $20,000/t in early May and is holding around $19,000/t in mid-June. The sulfur squeeze adds upside price risk to a market that has already shifted from surplus to deficit. SMM notes that as sulfur costs persist, MHP premiums are likely to rise, squeezing downstream battery and stainless supply chains.
The INSG's April forecast of a 32,000t deficit for 2026 assumed no major input disruptions. If the sulfur crisis forces Indonesian HPAL curtailments, the deficit could widen materially, with prices testing $20,000-22,000/t, the level Fastmarkets estimates is needed to incentivize Western sulphide restarts.
Monitor sulfur supply chains as closely as nickel prices. The sulfur squeeze adds a new variable that can disrupt Indonesian MHP production independently of the RKAB quotas. If you source battery-grade nickel (Class 1), expect premiums to widen through H2. For stainless buyers, the pass-through via nickel surcharges will lag but follow the LME price trajectory.