Indonesia's strategic shift in mining and rising demand for sulfuric acid

Indonesia is one of the world's leading producers of various minerals, including copper and nickel, thanks to its rich mineral resources and strategic investments in mining infrastructure.

According to S&P Global Commodity Insights, the country accounted for 54% of global nickel production in 2023 and ranked as the sixth-largest copper producer worldwide.

As China outlined its carbon neutrality plans by 2060, substantial investments in electric vehicles, renewable energy, and enhanced electricity infrastructure are necessary. In 2024, battery and plug-in hybrid electric vehicles accounted for 45% of new light vehicle sales in China, up from 32% in 2023, according to S&P Global Mobility.

The expansion of high-pressure acid leaching capacity initially increased Indonesia's import demand for sulfuric acid. According to Commodity Insights, demand for sulfuric acid reached 8.5 million mt in 2024, reflecting a significant compound annual growth rate of 22% since 2020. This increased demand for sulfur positions Indonesia as a major importer of these essential commodities.

In 2023, Indonesia reportedly imported 2.7 million mt of sulfur, three times higher than the 2020 level, and approximately 1 million mt of sulfuric acid, which is nearly eight times the amount imported in 2020. As Indonesia advances its mining industry, the consumption of sulfur should continue to rise at steady rate.

With the commissioning of sulfur-burning capacities, Indonesia has become a swing consumer based on market prices (approximately 1 mt of sulfur is required to produce 3 mt of sulfuric acid).

Enhancements in production capacity

In recent years, Indonesia enhanced its production by commissioning sulfur burners in coastal areas to support nickel-leaching capabilities. Mining operations extend from Java to Obi Island, with Sulawesi being a significant hub for nickel activities.

The primary import hub is Bahodopi, near the Morowali Industrial Park, with additional shipments to Gresik, East Java, for PT Freeport Indonesia. This and increased domestic smelting capacity will likely reduce Indonesia's appetite for imported sulfuric acid.

The commissioning of new smelters in Indonesia is set to significantly increase the country's domestic supply, impacting its net-trade position in the market.

PT Amman Mineral Industries started its copper smelter in October 2024, with a capacity of 830,000 mt/year, while PT Freeport Indonesia's Manyar smelter, which has a capacity of 1.5 million mt/year, is expected to restart in Q3 after delays due to a fire.

This increased domestic capacity could substantially reduce Indonesia's current import requirements, which stand at approximately 1.1 million mt/year, primarily sourced from South Korea, Japan, and the Philippines. Historically, the output from the Gresik smelter has been fully absorbed by the domestic market, and Amman's initial plans indicate a similar approach.

However, uncertainties remain about Indonesia's ability to fully absorb the additional supply. This supply comes from the Manyar smelter in the future. Commodity Insights analysts anticipate that Indonesia's demand will rise by 1.2 million mt in 2025, while Manyar could contribute an additional 375,000 mt if operating at full capacity from the third quarter onward. As a result, the anticipated increase in supply from these smelters will enhance inter-island shipments. It will also improve the country's market balance, offering a cost advantage over imports from Japan and South Korea.

In summary, Indonesia is poised to improve its trade deficit by 2025, particularly from Q3 onward, as domestic production begins to meet growing demand.

Challenges in nickel production

Indonesia is rich in natural resources, including copper, gold, tin, and nickel. Miners receive annual production quotas under an annual mining and budget plan known as an RKAB, which is valid for three years.

However, nickel producers are currently facing a shortage of ores due to government licensing issues, resulting in increased premiums. This tight availability of nickel ore has compelled some companies to import ores from the Philippines.

According to Tri Winarno, a senior official at Indonesia's Energy and Mineral Resources Ministry, the RKABs issued will be reviewed to ensure that miners are complying with the established regulations. The government is also advocating for increased investment in domestic processing to shift exports toward higher-value minerals.

A ban on raw bauxite exports enacted in 2023 will extend to copper, iron ore, lead, and zinc starting in 2024, further emphasizing the focus on enhancing domestic processing capabilities. Additionally, the rapid depletion of reserves led the Ministry of Energy and Mineral Resources to consider a moratorium on new electric furnace smelters to safeguard Indonesia's resources.

Future market dynamics

While Commodity Insights projects stable prices in the short term, additional supply from China could also place downward pressure on prices in the East. In the long term, Indonesia's demand will be increasingly driven by the mining industry, particularly with a projected 24% CAGR in nickel demand for EV batteries from 2025 to 2028.

Policy changes, market dynamics in the downstream sector, and the overall performance of the mining industry and EV adoption pace are likely to lead to price volatility in the markets.

Indonesia's increased domestic production, driven by new smelters, could reduce import reliance and stabilize prices in the short term. However, uncertainties in absorbing additional supply and the rapid growth in nickel demand for EV batteries may contribute to long-term price fluctuations.

Further Reading: Sulfuric Acid Outlook(opens in a new tab)