Indonesia nickel supply is under simultaneous pressure from a sulfur shortage, tightening ore quotas, and a revised pricing formula — a combination that drove the LME nickel 3-month closing price to $18,945/mt as of 8 May 2026, according to Shanghai Metals Market (SMM) data, while pushing the most-traded SHFE nickel contract briefly above 155,000 yuan/mt before a sharp single-day reversal of more than 3%.
Indonesia Nickel Supply Disrupted by Sulfur Shock
The immediate catalyst for the supply squeeze is a collapse in sulfur availability in Indonesia. Sulfur is a core input for hydrometallurgical processing of mixed hydroxide precipitate (MHP) — the intermediate product that feeds battery-grade nickel sulphate and refined nickel. Producing one tonne of MHP (metal content) requires 10–12 tonnes of sulfur.
SMM data shows the CIF Indonesia sulfur price reached $990–$1,050/mt by 8 May 2026, with some sellers quoting $1,250–$1,300/mt. The SMM solid sulfur average price rose approximately 77% from 3,910 yuan/mt at the start of 2026 to 6,928.5 yuan/mt by 8 May. Sulfur’s share of total MHP cash costs has surged from a normal range of 10–30% to an estimated 40–60%.
The root cause is geopolitical. Tensions affecting the Strait of Hormuz from late February disrupted Middle Eastern sulfur exports — a region that accounts for approximately 50% of global seaborne sulfur trade. Indonesia does not produce sulfur domestically, and its two main industrial parks — IMIP and Obi — sourced 93.9% and 91.6% of their sulfur respectively from the Middle East in 2025. Total sulfur imports into Indonesia in Q1 2026 fell 30% year-on-year to 966,000 mt.
Huafei Production Cut: The Landmark Supply Event
On 28 April 2026, Huayou Cobalt announced that its subsidiary Huafei Nickel & Cobalt would temporarily halt production on some lines from 1 May due to the sulfur price surge. The estimated output impact is approximately 50% of production. Huafei is currently the world’s largest operating nickel hydrometallurgy intermediate products project by capacity.
SMM reports that other Indonesian hydrometallurgy operations have also conducted maintenance or reduced load operations, with production impacts ranging from 15% to 50% across affected projects. The MHP supply contraction has lifted payable ratios — market MHP is now quoted at nickel 93.5%M / cobalt 92%, a notable increase from earlier levels.
The profit impact is severe. SMM estimates that the profit margin per tonne of MHP after cobalt credit has fallen from over $4,000/mt at peak to below $1,000/mt, with economics now heavily dependent on cobalt by-product revenue. CMN’s cobalt price tracker covers the cobalt market separately.
Indonesia’s Policy Stack Is Structurally Raising the Cost Floor
The sulfur crisis is amplifying an already tightening policy environment. Indonesia has implemented or proposed five overlapping measures that, in combination, are systematically raising the cost baseline for the global nickel industry chain.
RKAB quota cuts: Indonesia’s Ministry of Energy and Mineral Resources set the full-year 2026 nickel ore quota at 260–270 million mt, down more than 30% from the 2025 actual execution volume of approximately 326 million mt. The Weda Bay mine — one of the world’s largest single nickel operations — had its quota cut from approximately 42 million mt in 2025 to around 12 million mt, a reduction of over 70%, with a maintenance shutdown commencing from mid-May 2026.
New HPM pricing formula: From 15 April 2026, Indonesia officially implemented a revised nickel ore benchmark price (HPM) calculation methodology. The correction coefficient for 1.6%-grade nickel ore was raised from 17% to 30% — a 76% increase. Co-product metals including cobalt, iron, and chromium were included in the pricing system for the first time.
Royalties, export tariffs, and windfall tax: A PNBP royalty adjustment — which would raise the applicable rate from 14% to 15% at current nickel prices, and introduce a new 2% levy on cobalt in nickel matte — has been proposed but suspended pending reformulation, following industry pushback at a public hearing on 8 May. Export tariffs have been approved at the presidential level, with tiered rates proposed up to 11% based on market price. A windfall tax remains under discussion.
The Indonesian Nickel Smelters Association (FINI) has warned that the combined effect of rising energy, sulfur, and HPM costs may push processing and refining operations into loss. Critically, as of early May 2026, no actual transactions have been concluded under the new multi-element HPM formula — smelters are holding to the old pricing mechanism, meaning the full cost pass-through effect remains unresolved.
LME Inventory Caps the Upside
Despite the supply disruptions, nickel price upside remains constrained. LME nickel inventory stood at 277,788 mt as of 8 May — near a seven-year historical high. The market’s sharp intraday reversal after breaching 155,000 yuan/mt on SHFE reflects this structural ceiling: cost support is real and increasing, but physical demand has not accelerated to absorb it.
SMM estimates the most-traded SHFE nickel contract will trade in the 145,000–150,000 yuan/mt range through Q2 2026, with the pattern described as “cost floor below, demand ceiling above.” Battery-grade nickel sulphate was quoted at 34,120–34,520 yuan/mt as of 11 May 2026.
The medium-term price trajectory will depend heavily on when Strait of Hormuz sulfur flows normalise. If geopolitical risks ease and sulfur supply recovers, hydrometallurgy costs will pull back quickly and nickel prices may correct. However, the structural cost increases from Indonesia’s HPM revision and RKAB quota tightening are considered irreversible — the cost floor has been permanently elevated regardless of the sulfur outcome.
For current LME nickel price data and historical benchmarks, see CMN’s nickel price tracker. For broader context on the critical minerals market in May 2026, including performance across battery metals, see our monthly market analysis.
This article is for informational purposes only and does not constitute investment advice. Prices are subject to change without notice.
What is causing the Indonesia nickel supply disruption in 2026?
Two overlapping pressures: a sulfur shortage caused by disruption to Middle Eastern exports via the Strait of Hormuz, which has driven CIF Indonesia sulfur prices to $990–$1,050/mt; and Indonesia’s tightening nickel ore quota (RKAB), which has been cut more than 30% to 260–270 million mt for 2026. Together these are compressing margins for hydrometallurgical (HPAL) nickel producers.
Why did Huafei Nickel & Cobalt cut production by 50%?
Huayou Cobalt’s Huafei subsidiary announced on 28 April 2026 that it would halt some production lines from 1 May due to the sharp rise in sulfur prices. Sulfur accounts for an estimated 40–60% of total MHP cash costs at current prices — up from a normal range of 10–30% — making operations at full capacity economically unviable for many HPAL projects.
What is Indonesia’s new HPM nickel ore pricing formula?
Implemented from 15 April 2026, the revised HPM formula raised the correction coefficient for 1.6%-grade nickel ore from 17% to 30% and included cobalt, iron, and chromium as priced co-products for the first time. As of early May 2026, no transactions have been concluded under the new formula — most smelters are still negotiating against the old pricing mechanism.
What is the current LME nickel price?
The LME nickel 3-month closing price was $18,945/mt as of 8 May 2026, according to SMM data. The most-traded SHFE nickel contract briefly breached 155,000 yuan/mt before a single-day reversal exceeding 3%. See CMN’s nickel price tracker for current data.
How long will the Indonesia nickel supply squeeze last?
SMM forecasts SHFE nickel in the 145,000–150,000 yuan/mt range through Q2 2026. The sulfur supply situation depends on Strait of Hormuz geopolitics — if tensions ease, hydrometallurgy costs could normalise quickly. However, the cost increases from Indonesia’s HPM pricing reform and RKAB quota cuts are considered structural and permanent.
