Middle East tensions threaten sulfur supply for Indonesia’s nickel industry

Escalating geopolitical tensions in the Middle East and disruption to shipping through the Strait of Hormuz are raising concerns over sulfur supplies critical to Indonesia’s nickel processing sector, according to market analysis by Mysteel.

Indonesia imported about 5.35 million tonnes of sulfur in 2025, with roughly half coming from the Middle East, including 1.76 million tonnes from Saudi Arabia and about 930,500 tonnes from Qatar.

Sulfur is a key raw material for producing sulfuric acid used in hydrometallurgical processing, particularly high pressure acid leach operations that produce mixed hydroxide precipitate, or MHP, a key intermediate product for electric vehicle battery materials.

Indonesia’s demand for sulfur has grown rapidly as new nickel processing projects come online. Imports rose 48% year on year in 2025, partly driven by new battery materials operations such as QMB New Energy Materials.

Analysts said any disruption to shipments passing through the Strait of Hormuz could create supply risks for Indonesian nickel processors. Even without a full blockade, longer shipping routes, higher insurance costs and increased freight rates could raise delivered sulfur costs for Indonesian buyers.

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Market participants had already been expecting possible output cuts at some hydrometallurgical projects in Indonesia due to supply side pressures. Uncertainty over sulfur availability has intensified those concerns because the material is essential to maintain production rates at HPAL facilities.

Negotiations for second quarter long term contracts for MHP have not yet begun, with many smelters adopting a wait and see approach and refraining from issuing price quotations.

Rising sulfur costs are also feeding into nickel production costs. Mysteel estimates that producing one tonne of MHP requires around 8 to 10 tonnes of sulfur, meaning price changes have a direct impact on processing costs.

International sulfur prices have already been elevated. At the end of February 2026, sulfur prices at major Chinese ports were around 4,050 yuan per tonne, roughly double the level a year earlier.

Higher costs are also affecting competing nickel intermediates such as high grade nickel matte. While production of nickel matte in Indonesia rose to about 35,400 tonnes of nickel content in January 2026, the segment faces pressure from rising ore prices and tighter mining quotas under Indonesia’s RKAB mining permit system.

Analysts said the combined impact of higher sulfur costs and rising ore prices could push up prices for nickel intermediate products such as MHP and high grade nickel matte in the second quarter.

If supply tightens further, the market’s marginal cost benchmark for nickel production could gradually shift from lower cost MHP production toward higher cost nickel matte, potentially supporting higher nickel prices.

Editing by Alexander Ginting