By Charles Pitts
JAKARTA, Indonesia : Nickel prices on the London Metal Exchange (LME) surged to a three-week high on Friday, as tightening supply from Indonesia and an acute shortage of sulphuric acid threatened to bottleneck global production of the critical battery metal.
LME benchmark nickel futures climbed to approximately US$17,000 per tonne, a level not seen since late June. The rally was primarily driven by the Indonesian government’s decision to sharply revise its 2026 mining quotas, known locally as RKAB (Rencana Kerja dan Anggaran Biaya). According to updated Ministry of Energy and Mineral Resources filings, the total approved nickel ore mining quota for 2026 has been adjusted down to a range of 260 million to 270 million tonnes, a significant decrease from previous estimates that hovered around 320 million tonnes.
The reduction in available ore is compounded by logistical and chemical shortages. Smelters across South Sulawesi and Central Sulawesi have reported slowing activity as they grapple with a deficit of sulphuric acid: a critical reagent used in High-Pressure Acid Leaching (HPAL) plants to produce nickel intermediates for the electric vehicle (EV) battery supply chain.
Indonesia’s RKAB Constraints Tighten Global Market
Indonesia, which accounts for nearly 50% of global nickel production, has become the de facto price setter for the metal. The government’s move to tighten the RKAB process is part of a broader strategy to preserve ore reserves and ensure that domestic processing facilities (downstreaming) are fed with a sustainable supply of high-grade saprolite and low-grade limonite ore.
“The quota reduction caught the market off-guard,” said one Singapore-based metals analyst. “We were expecting a more liberal approval process to support the massive expansion of Indonesian capacity. Instead, the ministry is signaling a more cautious approach to resource management, which immediately puts a floor under prices.”
The RKAB approvals are essential for mining companies to legally operate and export or sell ore to domestic smelters. Without these permits, production effectively halts. In the Morowali Industrial Park (IMIP) in Central Sulawesi, several operators have already signaled that their ore stockpiles are reaching critical lows, leading to reduced furnace throughput.
Sulphuric Acid Shortage Impacts HPAL Operations
While the ore quota has dominated headlines, the secondary crisis involving sulphuric acid is proving just as disruptive for Class-1 nickel production. HPAL technology, which converts low-grade limonite ore into Mixed Hydroxide Precipitate (MHP), requires immense quantities of sulphuric acid.
Recent environmental regulatory changes in Southeast Asia and maintenance shutdowns at several regional copper smelters: which produce sulphuric acid as a byproduct: have severely restricted the supply of the chemical. In South Sulawesi, some HPAL projects have reported that acid deliveries are running 30% below required volumes.
The shortage has a direct impact on the production of battery-grade nickel. Unlike Nickel Pig Iron (NPI), which is used primarily for stainless steel, MHP is the preferred feedstock for nickel sulphate used in high-performance lithium-ion batteries. Any disruption in HPAL output creates an immediate deficit in the specialized battery-metal market, even if the broader stainless-steel market remains well-supplied.
Regional Slowdown: Sulawesi Smelter Activity
The impact is most visible in the industrial hubs of Sulawesi. Data from local port authorities and satellite monitoring suggests a measurable dip in activity at both the Morowali and Weda Bay industrial complexes.
In Central Sulawesi, smelter activity has slowed as operators prioritize higher-grade ore for their rotary kiln-electric furnaces (RKEF). In South Sulawesi, the focus remains on the acid shortage. The region’s reliance on imported acid from Japan and South Korea has left it vulnerable to shipping delays and rising freight costs, which have doubled in the last quarter.
“The logistics of moving thousands of tonnes of hazardous chemicals to remote mining sites are already difficult,” noted an operations manager at a Sulawesi-based refinery. “When the regional supply dries up, we have no choice but to throttle back production. We are currently operating at 75% capacity.”
Market Snapshot: Nickel Price Trends (LME)
The following table outlines the nickel price volatility observed in the first half of 2026, leading up to the current July spike.
| Period | Average Cash Price (US$/tonne) | Key Driver |
|---|---|---|
| January 2026 | $15,200 | Weak demand from Chinese stainless steel sector. |
| March 2026 | $15,850 | Initial RKAB approval delays in Indonesia. |
| May 2026 | $18,800 | Speculative rally on projected EV demand. |
| June 2026 | $16,400 | Market correction; supply surplus fears. |
| July 17, 2026 | $17,110 | Quota cuts and sulphuric acid shortage. |
Geopolitical and Economic Implications
The tightening of the Indonesian market comes at a time when Western nations are attempting to diversify their supply chains through initiatives like the Mineral Security Partnership. However, Indonesia’s dominance makes it difficult for any other region to fill the gap.
As noted in recent reports on mining news and market intelligence, the global reliance on Indonesian nickel remains a significant risk factor for the energy transition. The current supply squeeze highlights the fragility of a supply chain dependent on a single geographic region and a specific set of chemical reagents.
Investors are closely watching for any signs that the Indonesian government might soften its stance on the 260 million-tonne quota. If the quota remains firm, analysts predict that nickel could test the $19,000 range by the end of Q3 2026, particularly if the sulphuric acid shortage is not resolved.
Technology and Operational Responses
In response to the acid shortage, several large-scale miners are exploring the construction of captive sulphuric acid plants. These facilities would burn elemental sulphur to produce the necessary acid on-site, reducing reliance on the volatile regional market. However, these projects have multi-year lead times and will not provide immediate relief to the current supply deficit.
Furthermore, the adoption of advanced fleet management and telemetry is helping operators optimize ore blending to stretch limited stockpiles. Control rooms in the Sulawesi complexes are increasingly using AI-driven data to manage the chemistry of the leaching process more efficiently, aiming to reduce acid consumption per tonne of nickel produced.
Outlook: 2026–2027 Supply/Demand Balance
As the industry moves into the second half of 2026, the nickel market appears to be shifting from a state of comfortable surplus into a period of tactical deficit. While total global production capacity remains high on paper, the “effective capacity”: what can actually be produced given current ore and chemical constraints: is significantly lower.
For EV manufacturers, this volatility represents a return to the pricing uncertainty of 2022 and 2023. Contract negotiations for 2027 delivery are expected to start with higher base prices, reflecting the increased costs of Indonesian production and the premiums required for MHP and nickel sulphate.
The Indonesian Ministry of Energy and Mineral Resources is expected to provide a mid-year update on the RKAB status by early August. Until then, the market remains on edge, with every indication that supply-side constraints will continue to drive price action.
