A persistent and significant rise in global sulfur prices is directly impacting nickel smelting capacity in Indonesia that utilizes High-Pressure Acid Leach (HPAL) technology. This has led to a notable decline in the output of Mixed Hydroxide Precipitate (MHP), a core battery nickel raw material, introducing new disruptions to the new energy nickel supply chain.
Data indicates that Indonesia's MHP production in June 2026 was only 29,900 metal tons. Compared to the year's peak of 42,000 tons in January, this represents a substantial 29% drop in output, bringing supply-demand and cost pressures into full view.
MHP is a key nickel intermediate for power battery cathode materials. Indonesia, leveraging its laterite nickel ore resources and HPAL hydrometallurgical process, has become the world's largest MHP supplier. Sulfur is an irreplaceable core raw material for the entire production line. Under industry production standards, producing 1 ton of metal-equivalent MHP requires 10 to 12 tons of sulfur. Sulfur costs constitute an extremely high proportion of total smelting costs, and price fluctuations directly determine corporate profitability.
Primary Cause: Geopolitical Disruption in the Middle East Halts Sulfur Shipping, Exposing Indonesia's Over-Reliant Import Structure
The core trigger for the current sulfur shortage and MHP production cuts stems from a shipping crisis caused by geopolitical tensions between the US and Iran. A significant portion of global sulfur trade transits the Strait of Hormuz, where transport was obstructed during the conflict. This led to a sharp reduction in sulfur exports from the Middle East, driving international sulfur prices consistently higher.
Indonesia's domestic sulfur production capacity is weak, with approximately 75% of its sulfur demand reliant on imports. Furthermore, these imports are highly concentrated in the Middle East. The blockage of the shipping lane directly severed its main raw material channel, creating a rigid supply gap.
Even though the Strait of Hormuz has now resumed navigation, the market widely anticipates that global sulfur supply will struggle to return to normal levels quickly. The combined effects of clearing the backlog of vessels, restoring export capacity, and long ocean freight cycles mean a complete supply recovery is unlikely before August 2026, making the short-term raw material shortage difficult to reverse.
Cost Squeeze and Limited Alternatives Force Smelters to Proactively Reduce Output
The surge in sulfur prices has significantly compressed profit margins for Indonesian HPAL nickel plants, sharply increasing operational pressure on businesses. To mitigate losses, many smelting enterprises have opted to reduce their operating rates. Some plants have attempted to switch raw materials, using imported sulfuric acid to replace solid sulfur to sustain production. However, this alternative path has clear drawbacks: firstly, the logistics cost for liquid sulfuric acid is higher, with greater storage losses; secondly, overseas sulfuric acid supplies are also tight, making large-scale procurement difficult. This approach cannot fundamentally offset the production constraints caused by the sulfur shortage or fully compensate for the raw material gap.
Under the dual pressures of high raw material costs and the limited feasibility of alternatives, proactive production cuts have become a common industry choice. This ultimately resulted in June's MHP output shrinking by nearly 30% compared to the peak at the start of the year, directly affecting the global flow of nickel raw materials for power batteries.
Supply Chain Transmission: Hydrometallurgical Nickel Supply Tightens, Providing Cost-Support Logic for Medium-Term Nickel Prices
Global demand for battery-grade nickel from the new energy electric vehicle and energy storage sectors continues to grow steadily. As a mainstream hydrometallurgical nickel raw material, the decline in MHP production will gradually transmit downstream. In the short term, the contraction in Indonesian MHP supply will tighten the global availability of nickel intermediates. The elevated sulfur costs also persistently raise the floor cost for nickel smelting, providing support for nickel product prices.
From an industry structure perspective, this crisis has exposed the vulnerability of Indonesia's HPAL supply chain due to its single-source dependency on raw materials. Subsequently, leading nickel companies may accelerate the optimization of their sulfur procurement channels, broadening import sources beyond the Middle East. Simultaneously, they may adjust the pace of capacity deployment, slowing the commissioning progress of new HPAL production lines, leading to a phase of adjustment in industry production layouts.
Going forward, it is essential to continuously monitor two core variables: first, the pace of Middle Eastern sulfur export recovery and international sulfur price trends after August; second, the pace of operational recovery at Indonesia's major hydrometallurgical smelters. Together, these will determine the overall supply level of global MHP and nickel raw materials in the second half of the year.