Mining in Indonesia
Nickel Industry Overview

The sulfuric acid dependency is harder to find.

Each large HPAL plant in Indonesia burns through over 1.5 million tons of sulfuric acid per year. A number that gets quoted and then passed over as if it were just another input cost. It is not just another input cost. Indonesia produces negligible sulfuric acid domestically. The plants make their own from imported elemental sulfur. Elemental sulfur is a byproduct of hydrodesulfurization at petroleum refineries. The specific refineries that matter are SK Energy and S-Oil in Ulsan and Onsan, GS Caltex in Yeosu, Saudi Aramco's Ras Tanura and Jubail complexes, ENEOS at Mizushima and Negishi, Sinopec and PetroChina coastal facilities in Zhenhai and Dalian and Huizhou. When these refineries adjust their crude throughput, sulfur output adjusts with it. Not gradually. In step. Sulfur is not the product these refineries exist to make. They do not increase sulfur production to meet Indonesian HPAL demand. They produce sulfur as a consequence of making gasoline and diesel and jet fuel and naphtha, and if the economics of those products shift, sulfur supply shifts as a side effect.

Platts CFR Southeast Asia sulfur assessments have printed swings exceeding 80% within a calendar year. The Q1-to-Q3 move in 2022 was particularly vicious. An HPAL operator whose acid costs jump 80% over six months has no operational response available. The stoichiometry of the leach reaction sets the acid consumption per ton of ore. There is no process lever to pull. The plant uses the acid the chemistry requires or the plant does not run.

Inventory buffering does not work at these volumes. Sulfuric acid is dense, 1.84 specific gravity for concentrated, corrosive, requires acid-resistant containment, and gets consumed at 4,000-plus tons per day at a large plant. A realistic tank farm holds maybe a week of production. Building a month of strategic reserve would require a tank farm larger than most petroleum product terminals, filled with one of the most hazardous industrial chemicals in common use. Nobody has built one. Nobody is going to build one.

The acid plant integration is the part that makes operations teams nervous during turnarounds. Each Indonesian HPAL site has a sulfur-burning acid plant that serves double duty. Burn sulfur to make H₂SO₄. Capture the reaction heat to raise high-pressure steam. Route the steam into the HPAL circuit as process heat for the autoclaves and downstream sections. Elegant from a thermodynamic standpoint. From an operational standpoint, it means the acid plant failure mode is also a steam failure mode. When the acid plant trips, the leach circuit loses reagent feed and heat input at the same instant. The circuit does not degrade gracefully. The QMB plant at Morowali, the CATL-Tsingshan HPAL joint venture, experienced acid plant issues during its ramp-up phase starting in 2021. Lygend on Obi Island had sulfur supply and acid plant disruptions during its own commissioning. In both cases the public reporting used language like "commissioning optimization" and "phased capacity ramp" that communicates nothing about what specifically went wrong.

The autoclave maintenance cycle is better understood and more manageable than the acid question, even though it gets more attention in technical presentations. Titanium cladding inside the autoclaves erodes at weld seams and turbulence points from abrasive laterite slurry. Carbon steel beneath the titanium gets exposed. Acid attacks it. The autoclave leaks. Relining is months offline. Several Indonesian autoclaves have needed relining ahead of the intervals specified in their design basis, which means the maintenance capex line in the financial model was understated, which means returns are lower than projected, which is information the equity holders have but the public generally does not. Agitator shaft seals hold back 45 atmospheres of superheated acid slurry. They wear. When they fail the release is instantaneous. HPAL plants have blast walls for this reason.

These are solvable engineering problems with expensive solutions. Bigger maintenance budgets, shorter replacement intervals, better welding specs, improved seal metallurgy. An operator who accepts the capital cost can manage autoclave integrity. The acid supply chain is different because no amount of capital spent at the plant site in Sulawesi changes what happens at a refinery in Ulsan.

The cathode precursor companies in Chungju and Niihama and Cheongju signing MHP offtake with Indonesian HPAL operators are acquiring exposure to petroleum refinery scheduling across East Asia and the Persian Gulf. They may or may not appreciate this. The offtake contracts are structured around nickel price formulas and volume commitments. They do not, as far as any publicly available contract summary indicates, contain provisions for sulfur price passthrough or acid supply force majeure in any specific way. If sulfur spikes and the HPAL plant's margins evaporate, the plant can either eat the cost or invoke general force majeure and curtail deliveries. Neither outcome is good for the cathode maker's production planning.

Chromium downstream of the autoclave is the quality control problem that keeps HPAL metallurgists up at night and that cathode engineers in Korea and Japan hear about only when incoming MHP shipment assays come back out of spec. Indonesian limonite carries chromium. It dissolves in the autoclave alongside nickel and cobalt. Hexavalent chromium in the pregnant leach solution has to be reduced and precipitated before MHP production. The tolerance is parts per million. A qualified analytical chemist with properly calibrated instrumentation can manage it. The qualified analytical chemist has to be physically present at a site in Central Sulawesi, willing to stay, and working within a process control framework that catches excursions in real time. HPAL plants in Australia or Canada or Finland recruit from local university chemistry programs and from a domestic pool of experienced process metallurgists. HPAL plants in Morowali recruit from a much thinner talent pool and supplement with expatriate rotation staff. Chromium management during steady-state operation is one thing. Chromium management during a process upset, when flows and temperatures are off-spec and the operators are troubleshooting, is harder, and upsets at HPAL plants are not rare events during the first several years of operation.

The laterite ore feeding all of this, RKEF and HPAL alike, is degrading at the source. Indonesian saprolite profiles average 5 to 8 meters thickness. Grade variability across short lateral distances, half a percent Ni over 50 meters, is endemic to Indonesian deposits. Exploration drill spacing at 100 to 200 meters during feasibility produces resource models that bear limited resemblance to what the excavator encounters. Smelters at Morowali designed for 1.9% Ni feed have been receiving 1.5 to 1.6% on a sustained basis. At the throughput volumes these plants run, a 0.3% grade shortfall sustained for a year is tens of millions of dollars in absent revenue. The electricity consumption does not scale with grade. The near-field high-grade saprolite around Morowali has been mined out. Haul distances exceed 50 kilometers at some operations, on roads made of laterite that deteriorate in the wet season and require constant grading in the dry season. Tire replacement on those haul roads, at the truck sizes used, runs six figures per unit per year.

RKEF smelting is the volume producer. Over fifty lines at Morowali, dozens more across other parks. NPI cash costs around $10,000 per ton of contained nickel. Overcapacity relative to stainless demand growth. SMM had Indonesian NPI at 15 to 20% discounts to LME cash through 2024. BHP suspended Nickel West in July 2024, naming Indonesian supply in the ASX announcement. Panoramic went into administration. Koniambo in New Caledonia has never sustained profitability on over $7 billion of capital, and the territory's nickel-dependent Kanak workforce connects the NPI cost curve directly to the 2024 political violence in Nouméa. The Australian government's production tax credit under the Critical Minerals Strategy acknowledged the cost gap is structural.

The cobalt credit in MHP covers roughly a fifth of HPAL operating costs at recent cobalt prices. NMC cathode chemistry moving to less cobalt per cell weakens the credit over time. Several Indonesian HPAL plants are marginal on nickel alone.

Captive coal power at every site. PLN has no grid capacity. LNG import infrastructure does not exist. The plants are built and amortizing.

A furnace explosion at Morowali in December 2023 killed workers. Water contacted molten NPI. The Indonesian government increased inspections. The construction pace at these parks, commissioning schedules set in Beijing and Shanghai rather than by the site teams managing the ramp-up, compressed training and safety routine development into timelines that were not adequate.

HPAL tailings via DSTP at 150 to 250 meters depth. CSIRO work at PNG sites documented benthic effects. Indonesian sites have less monitoring data. Chinese companies control the majority of processing capacity. The IRA FEOC determination on U.S. EV tax credit eligibility is unresolved. Jakarta wants battery cell manufacturing, a capability that took Korean companies twenty years to develop. HPAL residues carry 40 to 100 ppm scandium against global production of 20 tons of oxide per year. A gray market in ore at small North Maluku ports continues.