Indonesia nickel boom, energy transition demand to keep global sulfur market tight in 2026

By Dominikus

The global sulfur market is expected to remain in a structural deficit through 2026, as supply constraints tied to oil and gas production fail to keep pace with accelerating demand from the energy transition sector, an analyst said on Monday.

The shift follows a turning point in 2025, when the market moved from surplus to deficit amid limited supply growth and rising consumption, according to Mirror Lin, an analyst at Shanghai Metals Market (SMM).

Sulfur production, more than 90% of which is derived as a byproduct of oil and natural gas processing, expanded only marginally as global crude oil and gas demand grew by around 1% in 2025. “Global sulfur production is expected to grow at a low rate,” Lin said during a webinar.

Supply has also been affected by disruptions, including a decline in exports from Russia, which shifted from a net exporter to a net importer of sulfur during 2025. At the same time, the Middle East has consolidated its position as the dominant export region, with Saudi Arabia, Qatar and the United Arab Emirates accounting for a significant share of global supply.

On the demand side, growth has been led by the energy transition sector, particularly battery materials. Demand from lithium iron phosphate (LFP) batteries in China and mixed hydroxide precipitate (MHP) production in Indonesia exceeded 10 million tons in 2025, rising sharply from previous years. “Sulfur demand surged by 29% in 2025, driven by rapid expansion in LFP and MHP production,” Lin said.

Indonesia has emerged as a key driver of this demand growth, supported by its rapid expansion of nickel processing capacity. The country’s sulfur imports increased from about 2.01 million tons in 2022 to around 5.35 million tons in 2025, as it scaled up production of nickel-based battery materials.

This growth is closely linked to the expansion of high-pressure acid leaching (HPAL) projects, which require large volumes of sulfuric acid. Indonesia’s MHP production reached about 444,000 tons of contained nickel in 2025 and is projected to rise to approximately 763,000 tons in 2026.

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The increase in output is expected to drive sulfur demand in Indonesia to nearly 9 million tons in 2026. “The corresponding demand for sulfur is close to 9 million tons, forming a considerable scale of rigid demand,” Lin said.

Indonesia’s sulfur consumption structure has shifted significantly, with demand increasingly concentrated in metal processing rather than traditional sectors such as fertilizers and chemicals. The share of sulfuric acid consumption linked to MHP production rose from around half of total demand in 2022 to more than 80% in 2025.

The country’s sulfuric acid demand remains heavily dependent on imports due to limited domestic production capacity. “Indonesia’s sulfuric acid demand almost relies on imports,” Lin said.

Rising demand has increased Indonesia’s reliance on external suppliers, particularly from the Middle East, which accounts for about 70% of global sulfur exports.

The tightening supply-demand balance has been reflected in prices. Sulfur prices rose by more than 200% in 2025, climbing from below $200 per ton at the start of the year to above $560 per ton by year-end, and exceeding $600 per ton in early 2026.

Price volatility has been amplified by geopolitical risks affecting key shipping routes, including tensions around the Strait of Hormuz and instability in the Red Sea, which have raised concerns over supply disruptions and higher transport costs.

While some additional supply may come from new LNG projects in the United States, Canada and Africa, overall growth is expected to remain limited relative to demand expansion in the battery materials sector.

Editing by Alexander Ginting