In the first quarter of 2026, MHP production in Indonesia witnessed a decline. According to Mysteel survey of nine sample projects in Indonesia, MHP nickel production stood at 39,000 tonnes in Ni. content, down 4.30% from January. For March, MHP production schedules pointed to just 31,700 tonnes in Ni. content, a further decrease of 18.61% month-on-month and a drop of 16.37% year-on-year.
Source: Mysteel
Meanwhile, price discount coefficients for nickel intermediates (including MHP and nickel matte) have been rising. As of March 16, the nickel discount coefficient for Indonesian MHP (relative to the LME nickel M-month) stood at 91%, while the cobalt discount 0(relative to standard cobalt) was 91.5%. Both were up noticeably from pre-Chinese New Year levels of 89% for nickel and 90% for cobalt, with metal prices reaching US $15,780/t in Ni. content and US $51,742/t in Co. content, respectively. The nickel discount coefficient for nickel matte also rose from 90.5% to 92.5%, with the metal price reaching US $16,040/t in Ni. content.
Source: Mysteel
II. Factors:
1. Tightening of RKAB Nickel Ore Approval Policies and Slow Progress
According to Indonesia's Ministry of Energy and Mineral Resources, the RKAB nickel ore quota target for 2026 is set in the range of 260-270 million tonnes, representing a reduction of over 30% from the actual 379 million tonnes realized in 2025. Meanwhile, Mysteel estimates that total nickel smelting demand in Indonesia for 2026 will be approximately 320-330 million tonnes. Even factoring in imports from the Philippines (estimated at 20-25 million tonnes), a supply gap of 30-40 million tonnes remains.
Source: Mysteel
Approval progress has been slow. According to Mysteel, as of March 17, only around 50 mining companies had received approvals totaling approximately 100 million tonnes of nickel ore quotas--still 160 million tonnes short of the target, with over 200 companies awaiting approval. During Ramadan (February 19 - March 20), administrative efficiency in Indonesia declined, further delaying the approval process. Most smelters are still consuming their 2024 quotas, which under current regulations can be carried over for use until March 31. If approvals do not pick up after Ramadan, many smelters could face nickel ore supply shortages starting in the second quarter.
For HPAL projects, the required ore type is limonite with a nickel content of 1.0-1.3%. With expectations of a tight nickel ore supply, ore prices have risen sharply--particularly for saprolite ore (nickel content above 1.5%), which is used in pyrometallurgical processes. Recent transactions for Ni:1.5% saprolite ore have generally exceeded US $75/wmt. Although limonite prices have also increased, with Ni:1.2% ore transactions reaching US $30-$35/wmt, the pace of gains has notably lagged behind saprolite. Given the limited quotas, the price differential is incentivizing miners to prioritize saprolite sales, which could further squeeze limonite availability.
2. Production Suspensions at QMB and Other Projects
On February 18, 2026, a landslide occurred in a tailings area within the Indonesia Morowali Industrial Park (IMIP) in Central Sulawesi, resulting in one worker fatality and several pieces of heavy equipment being buried. The affected area was the tailings management zone of PT QMB New Energy Materials. The incident is believed to have been triggered by a combination of local geological conditions and heavy rainfall.
The QMB project, a HPAL facility with an annual capacity of 65,000 tonnes in Ni. content, is operated by GEM and co-invested by Tsingshan and Brunp. The tailings facility is shared by four projects: QMB, Meiming, ESG, and Green-Eco, all of which are HPAL operations run by GEM. Together, these four projects have a combined capacity of 150,000 tonnes in Ni. content per year, and in 2025 they produced a total of 108,200 tonnes (in Ni. content) of MHP, accounting for approximately 30% of Indonesia's total HPAL output.
Operations at the affected site were suspended immediately after the incident. On March 9, all four projects entered a shutdown period for maintenance. GEM recently stated that it is conducting routine annual maintenance during Ramadan and the Eid al-Fitr holiday, expected to last one to two weeks, to ensure efficient production ramp-up thereafter. The company also noted that rectifications have been completed and that there are no issues related to permit revocations.
The impact of these suspensions on MHP production in 2026 is estimated at 12,000-20,000 tonnes in Ni. content. Notably, this only accounts for the direct loss from the shutdown. Given that tailings management is a core component of HPAL operations, the actual pace of production resumption and the level of regulatory scrutiny by the Indonesian government over safety in HPAL production will remain key variables influencing MHP supply.
3. Raw Material Sulfur Supply Crisis Triggered by Geopolitical Tensions in the Middle East
In late February 2026, geopolitical tensions in the Middle East escalated sharply, leading to shipping disruptions in the Strait of Hormuz. The closure of this critical global energy corridor directly impacted sulfur supplies for Indonesia's HPAL operations.
According to Mysteel, Indonesia imported 5.35 million tonnes of sulfur in 2025, with 76.2% originating from Middle Eastern countries such as Saudi Arabia and Qatar. Since 2021, both total sulfur imports and the share sourced from the Middle East have increased year by year. A breakdown by key nickel smelting regions reveals even greater dependence in certain industrial parks. Based on 2025 import data, the Morowali Industrial Park (IMIP) sourced 93.0% of its sulfur from the Middle East, Obi Island 89.1%, and Weda Bay Industrial Park (IWIP) 63.7%. This means that HPAL projects in Morowali and Obi rely almost entirely on a smooth passage through the Strait of Hormuz; a sustained disruption would make these parks the most vulnerable to MHP production curtailments.
Source: Mysteel
According to Mysteel's survey, Indonesian smelters typically maintain sulfur inventories sufficient for one to two months of production. Current stock levels across various parks are expected to support operations through April to May. While alternative sources of sulfuric acid--such as imported sulfuric acid, pyrite-based acid production, or calcium sulfate-based acid--could provide temporary relief, their availability is limited, production costs are high, or logistics are complex. At best, these alternatives can only serve as stopgap measures and cannot meet the massive sulfuric acid demand of Indonesia's HPAL projects, which is measured in millions of tonnes.
If the Strait of Hormuz remains blocked for an extended period, sulfur prices would inevitably surge, and Indonesia's MHP production would face a substantial shortage of critical auxiliary materials. Notably, negotiations for MHP long-term contracts in the second quarter are currently proceeding with extreme caution. Some smelters have only committed to shipments through April, while others have suspended price quotations entirely, a reflection of the profound uncertainty the industry faces regarding future supply.
II. Effects and Market Outlook
1. Assessment of Overall MHP Supply Variables in Indonesia
According to Mysteel's survey, there are currently nine operational HPAL projects in Indonesia, with an additional three to five projects expected to come online this year. In 2025, Indonesia's total MHP capacity stood at 445,000 tonnes in Ni. content, with actual production exceeding capacity at 468,900 tonnes in Ni. content. At the start of 2026, capacity was projected to expand to 922,000 tonnes in Ni. content, with output expected to reach 553,500 tonnes in Ni. content. However, following a series of events in the first quarter, the commissioning timelines and production forecasts for MHP projects may be adjusted.
Under an optimistic scenario, assuming RKAB approvals accelerate after Ramadan, with additional quotas in the second half of the year supplemented by imports from the Philippines, bringing total nickel ore supply to over 320 million tonnes for the year, the nickel ore supply would broadly match demand. In this scenario, the four QMB-related projects would resume full production within one to two weeks in line with the company's announced timeline, and the Strait of Hormuz would reopen to shipping in early April, averting any actual sulfur supply disruptions. Under these conditions, only the temporary suspension at QMB and related projects would result in a modest production loss, with new project commissioning largely unaffected. Indonesia's MHP output in 2026 is estimated at 542,100 tonnes in Ni. content, slightly lower than originally expected by 11,400 tonnes in Ni. content. Conversely, in a less favorable scenario, Indonesia's MHP production could fall to 456,000 tonnes in Ni. Content, a reduction of 100,000 tonnes in Ni. content from earlier expectations.
On balance, the actual MHP production in Indonesia in 2026 is estimated to range between 480,000 and 520,000 tonnes in Ni. content, representing a downward revision of 30,000 to 70,000 tonnes in Ni. content from earlier projections. While this reduction is not sufficient to reverse the global nickel market surplus, it is enough to tighten near-term supply flexibility and provide underlying price support.
2. Knock-on Effects on the Downstream Nickel Sulfate Industry
As a core feedstock for nickel sulfate, any reduction in MHP supply and rise in costs will ripple downstream. According to Mysteel calculations, MHP accounted for approximately 60% of China's nickel sulfate production feedstock in 2025.
Tightness in raw materials is already being felt at the nickel sulfate production level. According to Mysteel's survey, China's nickel sulfate output in February stood at 43,900 tonnes in Ni. content, down 16.2% month-on-month. Beyond seasonal factors related to the Chinese New Year, some producers reduced output amid cautious MHP procurement. While precursor manufacturers showed restocking demand in March, nickel sulfate producers remained conservative in their raw material preparations against a backdrop of uncertainty over MHP supply.
Source: Mysteel
On the price front, nickel sulfate is expected to trade within a range shaped by two key factors: cost push and supply contraction. In the second quarter, battery-grade nickel sulfate prices are likely to oscillate within the Yuan 30,000-33,000/tonne range. However, should MHP supply reductions exceed expectations, upside price movement cannot be ruled out on a temporary basis.
3. Nickel Matte as a Temporary Substitute for MHP
Amid tightening MHP supply, the role of nickel matte as an alternative intermediate product warrants attention. Although the raw material cost for nickel matte is slightly higher, its processing cost for nickel sulfate production is significantly lower than that of MHP. MHP requires multiple steps, such as dissolution and impurity removal, whereas nickel matte can be processed through direct leaching or roasting-acid processes, resulting in processing costs that are approximately Yuan 2,000-3,000 per tonne lower. According to Mysteel estimates as of March 13, the cost of producing nickel sulfate from nickel matte stood at Yuan 29,595 per tonne, yielding a profit of Yuan 2,405 per tonne--substantially higher than the Yuan 480 per tonne profit from the MHP route. This suggests that, when excluding by-product revenues, the higher raw material cost of nickel matte can be partially offset by its processing cost advantage.
Based on a survey of 15 sample projects, Mysteel reported that Indonesia's nickel matte production reached 344,000 tonnes in Ni. content in 2025, of which 267,500 tonnes in Ni. content were high-grade nickel matte and 76,500 tonnes in Ni. content were low-grade nickel matte. It is important to note that most high-grade nickel matte is produced using the same RKEF process as nickel pig iron (NPI), and production lines can often switch between the two products (adding sulfurization equipment to an NPI RKEF line enables low-grade nickel matte production). The final output mix depends on the profit differential between nickel matte and NPI.
Currently, Indonesia has 58 nickel matte production lines. Excluding nine lines using oxygen-enriched side-blown technology, 49 RKEF lines are capable of switching between nickel matte and NPI, representing a combined capacity of 682,000 tonnes in Ni. content. This implies that capacity utilization for RKEF nickel matte lines stood at only around 50% in 2025. If MHP supply falls short of expectations, leading to increased demand for nickel matte, additional RKEF lines could potentially switch production. Mysteel projects that Indonesia's nickel matte output will increase to 440,200 tonnes in Ni. content in 2026.
Written by Cora Ji, jiruyan@mysteel.com
