Rising ore costs, sulfur prices, RKAB limits threaten Indonesia nickel industry

By Dominikus

Indonesia's nickel processing industry is facing mounting pressure from rising ore costs, tightening raw material availability and surging sulfur prices, raising concerns over the competitiveness and utilization of the country's rapidly expanding downstream sector, according to Arif Perdana Kusumah, chairman of the Indonesia Nickel Industry Forum (FINI).

Speaking at a journalism training event held alongside the Indonesia Critical Minerals Conference in Jakarta on June 3, Arif said recent changes to the government's mineral benchmark pricing formula, constraints on approved mining quotas and growing dependence on imported sulfur could significantly affect smelters and refineries, particularly those without captive mining operations.

The benchmark pricing mechanism, known as Harga Patokan Mineral (HPM), serves as the minimum reference price for domestic nickel ore transactions. FINI said revisions to the formula have substantially increased raw material costs for downstream processors.

Under the new HPM, 1.5% nickel-grade saprolite ore is priced at US$57.13 per wet metric ton FOB. After taxes and freight, the delivered cost rises to around US$72.47 per wet metric ton, adding an estimated US$1,378 per ton of nickel to production costs for rotary kiln-electric furnace (RKEF) smelters producing nickel pig iron (NPI), ferronickel and nickel matte.

The impact varies across the industry. Integrated RKEF operators with captive mines remain relatively insulated, with estimated break-even costs of around US$11,950 per ton of nickel. At April NPI prices of about US$13,200-US$13,500 per ton, these producers remained profitable on a cash-cost basis.

Non-integrated smelters face a more difficult situation. FINI estimates their break-even cost at around US$15,740 per ton of nickel, implying losses of roughly US$2,200-US$2,500 per ton for facilities purchasing ore at prevailing market prices.

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The revised pricing formula has also increased costs for high-pressure acid leach (HPAL) refineries that process limonite ore into battery materials. FINI said the HPM floor price for 1.2% nickel-grade limonite rose from about US$16 per wet metric ton to US$40.18 per wet metric ton FOB, or around US$48.18 per wet metric ton on a delivered basis.

As a result, ore now accounts for about 35.4% of HPAL processing costs, compared with around 28% before the revision. FINI estimates the increase has added roughly US$1,990 per ton of nickel to HPAL production costs.

At the same time, the industry faces growing concerns over ore availability.

FINI estimates Indonesia's nickel processing sector will require around 340 million to 350 million wet tons of ore in 2026, including additional limonite demand from expanding refining capacity. However, the proposed 2026 Work Plan and Budget (RKAB) would permit production of only around 270 million wet tons.

Assuming a realization rate of about 90%, actual domestic supply could reach only around 243 million wet tons, leaving a potential shortfall of approximately 107 million wet tons.

Imports from the Philippines are expected to cover only part of the gap. FINI estimates imports at around 15 million to 25 million wet tons, leaving a remaining deficit of roughly 82 million to 92 million wet tons next year.

According to FINI, the supply gap could reduce utilization rates at nickel processing and refining facilities by around 25% to 30%, resulting in lower nickel output, slower refinery operations and reduced economic activity across nickel-based industrial zones.

The imbalance is particularly evident at the regional level. Sulawesi accounts for about 70% of permitted ore volumes and remains a net supplier, while North Maluku faces a local deficit and increasingly relies on shipments from Sulawesi or imports from the Philippines to support its growing industrial base.

Beyond ore supply, HPAL operators are facing another challenge from the sharp rise in sulfur prices.

Sulfur is a critical reagent in HPAL processing and currently accounts for more than 55% of processing costs, according to FINI. Indonesia remains heavily dependent on imported sulfur, with around 84% of supplies sourced from Gulf countries through 2025.

The pressure has intensified following supply disruptions and geopolitical tensions that pushed CIF Indonesia sulfur prices to around US$1,020 per ton as of April 29, 2026, compared with about US$250 per ton a year earlier.

Producing one ton of nickel in mixed hydroxide precipitate (MHP) requires roughly 10-11 tons of sulfur. FINI estimates that if sulfur prices remain around US$800 per ton, HPAL C1 costs could increase by approximately US$1,600 per ton of nickel.

The combination of higher ore prices and rising sulfur costs is placing particular strain on non-integrated HPAL projects. FINI said some operators purchasing both ore and sulfur at market prices were already facing losses of around US$2,500-US$5,200 per ton of nickel in April.

Integrated operators with captive ore resources and stronger procurement arrangements remain better positioned to withstand the pressure.

Indonesia's nickel production in 2026 is estimated at around 2.05 million to 2.45 million tons of contained nickel, below 2025 levels due to RKAB restrictions and other operational factors.

The convergence of rising ore costs, tightening ore availability and growing dependence on imported sulfur highlights a growing challenge for Indonesia's downstreaming strategy. While the country has rapidly expanded smelting and refining capacity, maintaining competitiveness may increasingly depend on aligning ore pricing policies, mining quotas and critical input supply chains with the needs of downstream processors.

FINI warned that without such alignment, cost pressures and raw material constraints could undermine the broader nickel value chain that Indonesia has spent years building.

Editing by Reiner Simanjuntak