Proposed cuts to Indonesia's nickel production quotas will potentially weigh on operating rates at high-pressure acid leaching (HPAL) plants and raise production costs.
Indonesia's energy and mineral resources ministry (ESDM) is expected by market participants to reduce this year's nickel ore work plans and budgets (RKAB) quotas to 250mn–260mn t, down sharply from 370mn t in 2025, which has caused consternation in the market since January.
Concerns intensified after French miner Eramet confirmed on 11 February that its subsidiary Weda Bay Nickel (WBN) — the world's largest nickel mine — was allocated just 12mn wet metric tonnes (wmt) of RKAB for 2026, a steep drop from 42mn wmt last year. The announcement triggered a prompt spike in benchmark nickel prices, with the three-month London Metal Exchange (LME) contract settling at $17,940/t on 11 February, up by 4.4pc on the day.
Sulphur and sulphuric acid are crucial feedstocks for producing nickel matte and mixed hydroxide precipitate (MHP) via the RKEF and HPAL processes respectively, with sulphuric acid in Indonesia typically generated by burning sulphur in on-site plants.
The tightened RKAB quotas may lead to two potential outcomes. Producers may need to increase nickel ore imports from the Philippines or New Caledonia to maintain feedstock supply, raising production costs. But export availability from both sources remains constrained, with the Philippines already channelling most ore sales to China, while New Caledonia continues to face operational challenges.
Meanwhile, surging sulphur prices have already eroded margins. Argus assessed granular sulphur cfr Indonesia at $542.50/t on a midpoint basis on 5 February, a rise of $367/t, or 196pc, from 3 January 2025. The sharp increase has been driven in part by robust demand from Indonesia's rapidly expanding nickel industry, which imported 5.35mn t of sulphur in 2025, 48pc higher than a year earlier. The rise in sulphur prices combined with limited ore supply may push margins for downstream products such as MHP into negatives.
The second possible outcome is curtailed operating rates. Battery metals producers were mostly running at above nameplate capacities at their HPAL units through most of 2025, market sources said. A reduction in utilisation would directly impact demand for both sulphur and sulphuric acid. But this remains unlikely, given that HPAL facilities are typically required to operate at high rates for cost-efficiency.
Higher production costs or lower capacity utilisation rates may lead to weaker demand or delays in new Indonesian projects.
The latest RKAB quota reductions are expected to primarily affect operations in the Indonesia Weda Bay Industrial Park (IWIP) in North Maluku, the main recipient of WBN nickel ore. IWIP hosts Chinese producer Huafei, which requires around 1.67mn t/yr of sulphur at capacity, and Indonesian firm Blue Sparking, which came on line last month and requires 666,667 t/yr of sulphur at capacity. Stainless steel producer Tsingshan's Guangqing project, slated for commissioning in 2027 and expected to add another 666,667 t/yr of sulphur demand, may also face delays.
