Nickel’s Structural Shift: Indonesian Ore Tightness and the Rise of MHP
Indonesia, the undisputed king of the global nickel trade, is facing an unexpected challenge: a domestic ore shortage. This structural tightness is forcing smelters to import varying grades of ore from the Philippines to keep kilns running, squeezing margins and altering the global pricing landscape. Simultaneously, the economics of converting nickel briquettes to sulphate have theoretically reopened, signaling a potential ceiling for Class 1 nickel premiums. This article explores the "Raw Material Battle of 2026," analyzing the competition between MHP and high-grade nickel matte as the preferred feedstock for the battery sector.
The Indonesia Paradox: Ore Shortage in the Land of Plenty
Despite holding the world's largest nickel reserves, Indonesian smelters are facing critical feedstock shortages. Regulatory delays in approving mining quotas (RKABs) and the rapid expansion of domestic smelting capacity have created a mismatch between mine output and smelter demand.
In a striking pivot, Indonesian processors are increasingly turning to the Philippines for ore, importing over 10 million tonnes in 2024 with volumes expected to hit 15 million tonnes in 2025. This reliance on imported ore raises the cost floor for Indonesian Nickel Pig Iron (NPI) and matte, eroding the cost advantage that allowed Indonesia to crash global nickel prices in 2023-2024. If this tightness persists, we could see a permanent reset in the cost curve for Class 2 nickel.
The Raw Material Battle: MHP vs. Matte
As we look toward 2026, the battery supply chain faces a "battle of intermediates." Mixed Hydroxide Precipitate (MHP) remains the market's preferred feedstock due to its low cost and valuable cobalt by-product credits. However, supply tightness and rising sulfur prices (a key input for HPAL plants) are pressuring MHP payables.
High-grade nickel matte, traditionally the swing producer, remains at a competitive disadvantage due to higher energy costs and the lack of cobalt credits. However, analysts predict that 2026 could see a "window of opportunity" for matte producers. If MHP supply tightens further due to Indonesian permitting issues, battery precursor makers may be forced to switch back to matte, despite the cost penalty.
The Conversion Arbitrage Returns
A critical development in November 2025 is the widening spread between refined nickel (Class 1) and nickel sulphate. The premium for battery-grade sulphate recently approached 10,000 CNY/tonne over refined metal. At this level, it becomes economically viable to dissolve nickel briquettes (Class 1 metal) to produce sulphate—a process that had been unprofitable for years.
This reopening of the "dissolution arbitrage" window acts as a natural cap on sulphate prices. If sulphate prices rise too high, vast inventories of Class 1 nickel sitting in LME and SHFE warehouses can be mobilized, converted, and flooded into the battery market, preventing a runaway price spike.
Forecast: Bullish on Ore, Bearish on Smelter Margins
Market Sentiment: Bullish (Ore/Feedstock) / Neutral (Refined Metal)
We maintain a bullish outlook on nickel ore prices and MHP payables due to the structural constraints in Indonesia. However, this creates a bearish environment for smelter margins. Processors will be squeezed between rising ore costs (driven by Philippine imports) and a ceiling on finished product prices imposed by the massive global inventory of Class 1 nickel. Expect further consolidation in the Indonesian smelter sector as high-cost operators are forced offline.