Nickel output at Indonesia Morowali Industrial Park (IMIP) may come under pressure in the near term because of dry weather and high temperatures linked to the El Niño weather pattern that would strain water supplies.
Reduced rainfall and weaker river flows could be new challenges to nickel operations. And output from IMIP's processing facilities may be disrupted if dry conditions persist and water availability deteriorates further, some sources said.
High pressure acid leaching (HPAL) operations are water-intensive. An HPAL plant could consume 200-400m³ of water for every tonne of nickel produced.
Rotary kiln electric furnace (RKEF) operations are energy-intensive and use significantly less water, but they are still vulnerable to dry weather. Most RKEF operations in IMIP rely on off-grid coal-fired captive power plants. Dry weather has severely reduced water levels, disrupting coal-barging routes in Indonesia's coal mining hubs such as Kalimantan, which has threatened coal supply for captive power plants in IMIP.
Any production disruptions could lend support to nickel prices, which recently traded at $16,000-17,000/t on the London Metal Exchange (LME).
Indonesia's Meteorology, Climatology and Geophysics Agency (BMKG) has issued an early drought warning for several regions, including parts of Sulawesi, where dry conditions are expected to persist. Rainfall level is also predicted to be less than 50mm/month in Sulawesi island in September.
Market participants are closely tracking weather developments for signs of potential impacts on Indonesia's nickel sector, which is already contending with subdued demand and elevated feedstock costs.
Some mixed hydroxide precipitate (MHP) producers in Indonesia were already considering to output reductions in September because of rising sulphur-related production costs and weaker-than-expected demand from the battery materials sector. The scope and timing of any cuts have yet to be confirmed, but prolonged dry weather and the risk of water shortages have increased concerns over further production curtailments.
Major HPAL operations in IMIP include battery metals producer Huayou Cobalt's Huayue plant, which has nickel capacity of around 60,000 t/yr, as well as QMB and GEM-related projects with a combined capacity of roughly 150,000 t/yr. Excelsior Nickel Cobalt's ENC's 72,000 t/yr nickel project also began production in July. Company disclosures indicate Huayue produced 85,031t of nickel in 2025, while GEM-related projects generated around 110,000t.
Morowali's RKEF capacity is estimated at roughly 5mn t/yr, although not all facilities are running at full utilisation. Nickel production from RKEF plants is estimated at around 450,000 t/yr, primarily in the form of nickel pig iron (NPI), while some nickel cathode production relies on nickel matte feedstock, according to data compiled by Argus.
El Niño conditions are expected to remain strong through the peak dry-season months, with seasonal conditions typically easing from October. But uncertainty remains over how weather patterns will develop during the remainder of the year, clouding the outlook for nickel production activities.
