Indonesia’s effort to build one of the world’s most important electric-vehicle battery supply chains has run into a simple but expensive problem: turning its abundant low-grade nickel into battery material has become increasingly costly. Jakarta is now adjusting the numbers.
A new government pricing formula sharply reduces the benchmark valuation of low-grade limonite ore, easing feedstock costs for high-pressure acid leach, or HPAL, plants that convert the material into nickel and cobalt intermediates used in batteries. The change comes as processors contend with elevated sulphur costs, pressure on cobalt revenues and a difficult operating environment. Given Indonesia’s enormous position in global nickel production, what looks like a technical change to a domestic pricing formula could have consequences well beyond its mining regions.
Indonesia Created a New Price Break at 1.2% Nickel
Indonesia’s Energy and Mineral Resources Ministry formally revised its mineral benchmark system through Ministerial Decree No. 363.K/MB.01/MEM.B/2026. The decree was established on September 11 and took effect on September 15, 2026. Its most important change involves nickel ore containing 1.2% nickel or less, the low-grade limonite material commonly supplied to HPAL processors. Under the previous system, ore containing 1.2% nickel carried a corrective factor of 26%. The new formula reduces that figure to just 14%, a 12-percentage-point adjustment.
For even lower grades, the corrective factor falls another percentage point for every 0.1-percentage-point decline in nickel content. A 1.1% ore grade therefore carries a 13% factor, while 1.0% ore uses 12%. Ore above 1.2% follows a separate structure: the government retains a 30% corrective factor at 1.6% nickel, moving it by one percentage point for every 0.1-point change in nickel grade. That creates a deliberate pricing break between low-grade limonite and the higher-grade material used more widely across Indonesia’s nickel-processing industry.
The Price of Some Limonite Has Fallen Dramatically
The practical impact is much larger than the wording of the regulation might suggest. Using Indonesia’s nickel reference price of US$16,698 per metric tonne for the second half of September, Shanghai Metals Market calculated a benchmark price of approximately US$24.89 per wet metric tonne for ore containing 1.2% nickel. That represents a reduction of roughly 45% under the revised methodology, or about US$20 per wet tonne compared with calculations using the previous structure.
The effect becomes much less dramatic immediately above the 1.2% threshold. SMM calculated a benchmark of about US$49.20 per wet tonne for 1.3% nickel ore, while 1.4% material came in at roughly US$53.83. Those figures illustrate how specifically the government has targeted lower-grade limonite rather than broadly cutting nickel prices across every ore category. For an HPAL facility purchasing millions of wet tonnes of feedstock, however, even a modest per-tonne change can translate into substantial operating-cost differences. A decline approaching US$20 per tonne on qualifying material can therefore materially reshape the economics of plants built around low-grade resources.
The Change Targets the Nickel That Battery Plants Actually Need
Not all Indonesian nickel ore ends up in an EV battery. Much of the country’s historically dominant nickel industry processes higher-grade laterite ore into nickel pig iron and ferronickel, products principally associated with stainless-steel manufacturing. Limonite is different. Its lower nickel concentration makes some conventional processing routes unattractive, but HPAL technology can extract nickel and cobalt from it and turn those metals into mixed hydroxide precipitate, better known as MHP. MHP can then be refined further into materials suitable for nickel-containing lithium-ion battery cathodes.
That relationship explains why Indonesia was willing to create a separate pricing treatment for low-grade ore. Material that might once have carried comparatively limited economic value has become strategically important as Indonesia pushes deeper into battery processing. The revised formula still considers nickel, iron, cobalt and chromium content as well as moisture, but the value assigned to low-grade nickel has been recalibrated. The Indonesian Nickel Miners Association argues that better limonite economics could bring previously marginal low-grade reserves into commercial use and increase the volume absorbed by HPAL facilities. In effect, Jakarta is trying to make more of the ore already sitting in Indonesian deposits economically usable.
Sulphur Costs Had Turned Into a Serious HPAL Problem
The adjustment arrives after an unusually difficult period for HPAL producers. These facilities require large amounts of sulphuric acid to leach nickel and cobalt from laterite ore. Much of that acid is produced using sulphur, leaving Indonesian processors exposed to international sulphur markets. Reuters reported earlier in 2026 that Indonesia sourced roughly 75% of its sulphur imports from the Gulf, making the industry particularly vulnerable to disruption associated with the Middle East conflict and shipping problems around the Strait of Hormuz.
The consequences became visible on factory floors. Zhejiang Huayou Cobalt’s Indonesian operation announced the temporary shutdown of part of its HPAL production beginning May 1, with the disruption affecting roughly half of production. Industry participants were simultaneously hunting for alternative sulphur supplies from farther away. S&P Global reported that sulphur prices had risen from roughly US$250 per tonne previously to more than US$1,000 during the supply shock. The International Energy Agency also highlighted surging acid costs as a major new pressure on critical-mineral processing. Lowering limonite feedstock costs does not eliminate the sulphur problem, but it provides processors with relief elsewhere in their cost structure.
Cobalt Economics Were Squeezing Producers From Another Direction
Sulphur has not been the only pressure on Indonesian HPAL margins. MHP contains both nickel and cobalt, meaning plant economics depend partly on what buyers are willing to pay for each metal contained in the intermediate product. During September, Reuters reported that some Chinese battery-material buyers were negotiating sharply lower cobalt “payables,” the percentage of the benchmark cobalt-metal price that a buyer actually pays for cobalt contained in MHP.
Deals were reportedly being negotiated around 67% to 70% of the underlying cobalt price, compared with roughly 90% earlier in August. CATL-linked Brunp was reported to have secured material at a 67% payable, while a transaction involving CNGR was around 70%. Indonesia’s revised ore formula now provides a partial counterweight on the feedstock side. For ore containing 1.2% nickel or less, the corrective factor applied to associated cobalt has fallen from 30% to 17%. Above the 1.2% nickel threshold, the cobalt factor remains 30%. The result is a lower benchmark valuation for the cobalt contained in the limonite that HPAL operators purchase.
Smelters Gain Relief, but Miners and State Revenue Need Watching
For HPAL operators, the immediate attraction is straightforward: lower benchmark ore prices can reduce the cost of obtaining limonite at a moment when several other expenses have risen. The Indonesian Nickel Industry Forum said the revised structure provides greater protection from operating losses and cash-flow deficits. The benchmark also has implications beyond the price paid between a mine and a processor because it feeds into calculations affecting royalties and other government revenue associated with the ore.
That creates a balancing act for Jakarta. Nickel miners receive less benchmark value for certain low-grade material, while the government could collect less revenue per wet tonne if the taxable or royalty base falls. The Indonesian Nickel Miners Association has therefore urged authorities to judge the policy by more than the headline price reduction. It wants officials to track average benchmark prices by grade, physical transaction prices, traded volumes, limonite absorption by processors, royalties per tonne and total non-tax state revenue. Higher HPAL consumption could theoretically offset part of the lower value collected on each tonne, particularly if previously uneconomic limonite begins entering the market. Whether that happens will become clearer after several months of trading.
Indonesia’s Scale Makes a Domestic Formula Globally Important
Few countries can alter nickel economics without attracting global attention, but Indonesia is no ordinary producer. The International Energy Agency estimates that Indonesia now accounts for about 63% of global mined nickel production. U.S. Geological Survey data similarly showed the country supplying roughly 62% of world mined output in 2024. Rapid Indonesian expansion has reshaped the nickel industry over the past decade, putting pressure on higher-cost operations in countries including Australia while attracting billions of dollars into Indonesian smelters and processing facilities.
The concentration extends increasingly into refining. The IEA’s 2026 critical-minerals analysis found that Indonesia was the leading refining country for nickel and that almost all recent growth in nickel supply came from the dominant supplier. That means policies affecting Indonesian mine quotas, royalties, processing costs or benchmark pricing can quickly influence expectations across the international market. Jakarta spent years pushing its industry downstream from raw ore toward processed nickel products. The new limonite formula should be viewed within that broader strategy: the government appears willing to adjust upstream economics when necessary to protect the viability of the processing capacity it worked so aggressively to attract.
Battery Makers Benefit, but Cheaper EVs Are Not Guaranteed
The significance for batteries is concentrated in chemistries that actually consume nickel. Nickel-rich cathodes remain particularly important outside China. The International Energy Agency estimated that almost 80% of EV batteries deployed outside China during 2025 used nickel-containing chemistries. By contrast, lithium iron phosphate batteries contain no nickel or cobalt, meaning Indonesia’s limonite adjustment has little direct raw-material impact on an LFP cell. The pricing change therefore matters most to supply chains producing nickel-cobalt-manganese and related cathode materials.
Even there, a cheaper tonne of Indonesian limonite does not automatically translate into an immediate drop in the sticker price of an electric vehicle. Ore is only one cost within a long chain that includes HPAL processing, nickel and cobalt refining, precursor production, cathode manufacturing, cells, packs, logistics and vehicle assembly. The first measurable effect is more likely to appear in HPAL margins, investment decisions and operating rates. Still, keeping Indonesian battery-material plants running economically matters to manufacturers relying on nickel-rich chemistries. With Indonesia controlling such a large share of global nickel supply, a healthier upstream processing industry can eventually help stabilize one of the most strategically important links in the EV battery chain.
