- HPAL capacity expansion expected to accelerate in 2027
- NPI remains a key stainless steel raw material
Indonesia’s expanding high-pressure acid leaching (HPAL) capacity is expected to significantly increase demand for low-grade nickel ore in 2027, raising concerns over the availability of high-grade ore used in nickel pig iron (NPI) production for the stainless steel industry. With several HPAL projects approaching commissioning and commercial operations, the allocation of nickel ore production quotas under Indonesia’s RKAB system is emerging as a key factor influencing raw material supply and costs.
According to the Indonesian Nickel Industry Forum (FINI), several HPAL projects are nearing the final stages of construction, with new facilities and existing capacity expansions expected to drive higher demand for limonite ore. However, Indonesia’s restrictive production quota policy could create competition for ore resources if total approved output does not keep pace with demand from the country’s expanding smelting industry.
HPAL expansion to accelerate low-grade nickel ore demand
HPAL is a hydrometallurgical process that extracts nickel and cobalt from low-grade limonite ore using sulphuric acid under high temperature and pressure. The process produces mixed hydroxide precipitate (MHP), an intermediate material used in the production of battery-grade nickel products.
According to FINI, Indonesia’s production of HPAL-based products, including MHP, nickel sulphate and cobalt sulphate, was estimated at approximately 450,000 tonnes in 2025 on a nickel-content basis. Output is expected to increase significantly by the end of 2027 as existing facilities expand and new projects begin operations.
FINI Chairman Arif Ferdana Kusuma has highlighted the need for additional low-grade nickel ore to support the expansion of HPAL capacity.
One major project is the HPAL facility in Pomalaa, Southeast Sulawesi, jointly promoted by Vale Indonesia, China’s Huayou Cobalt and US-based Ford. The project is targeting a full-scale production ramp-up in 2027, with MHP capacity of approximately 120,000 tonnes per year on a nickel-content basis. Once fully operational, the facility is expected to require around 21 million tonnes of low-grade nickel ore annually.
The commissioning of multiple HPAL projects is therefore expected to increase competition for limonite ore across Indonesia’s nickel processing industry.
Nickel ore quotas remain below estimated industry demand
Despite rising demand, Indonesia continues to manage nickel ore production through its annual work plan and budget (RKAB) system.
The government has set the 2026 nickel ore production quota at approximately 260–270 million tonnes, down significantly from the roughly 379 million tonnes approved in 2025.
In contrast, FINI estimated that Indonesia’s nickel ore demand would reach approximately 320 million tonnes in 2026, indicating a substantial gap between approved production and the industry’s anticipated raw material requirements.
Indonesia’s Ministry of Energy and Mineral Resources projected actual nickel ore production at approximately 290 million tonnes for the year. Although this would exceed the initial quota range, it would still fall short of FINI’s estimated demand.
Supply constraints have also affected smelter operations. FINI reported in June that operating rates at rotary kiln-electric furnace (RKEF) smelters had declined amid raw material shortages. The government has maintained a policy of selectively allocating additional production quotas to smelters facing shortages rather than expanding overall production without restriction.
HPAL and NPI compete for different nickel ore grades
The impact of HPAL expansion on stainless steel raw materials depends on the distinction between the nickel ore grades used by different processing routes.
HPAL facilities primarily use limonite, a lower-grade ore generally found in the upper layers of nickel deposits. In contrast, NPI production through the RKEF route relies mainly on saprolite, a higher-grade ore commonly found in deeper layers. NPI is an important raw material for stainless steel production.
Although limonite and saprolite serve different processing routes, both are subject to Indonesia’s production quota management. Mining plans generally specify production volumes for each ore type separately.
If the government allocates a larger share of total production quotas to limonite to meet the needs of expanding HPAL facilities, the availability of quotas for saprolite could become more constrained. However, increased limonite mining does not automatically translate into lower saprolite production, as both ore types can be extracted from the same mining areas depending on geological conditions and mine development.
The actual supply balance will depend on mineral reserves, mining conditions, quota allocations by ore type and the procurement requirements of individual smelters.
Mine-level quota adjustments reflect changing demand
Australian company Nickel Industries has announced an increase in the production and sales quota for nickel ore from its Hengjaya mine in Indonesia, from 9 million tonnes to 14.3 million tonnes in 2026.
The adjustment illustrates how mine-level production quotas and supply plans are being revised alongside changes in nickel processing capacity and raw material demand, including requirements associated with HPAL projects.
However, the broader impact on high-grade ore availability will depend on how the Indonesian government distributes production quotas across mines and ore types.
Outlook: 2027 quota policy to influence NPI costs
Indonesia’s nickel ore market is expected to face increasing pressure as new HPAL facilities begin operations and demand for low-grade ore rises in 2027. The extent to which the government expands overall production quotas will be a key determinant of whether additional supply can meet the requirements of the growing smelting industry.
If total quota allocations fail to keep pace with demand, and a greater share of approved production is directed towards limonite, the availability of saprolite for NPI production could come under pressure. This could increase raw material procurement costs for NPI producers and subsequently affect stainless steel manufacturing costs.
Nevertheless, any impact on saprolite supply will depend on mine-specific reserves, extraction conditions and the allocation of quotas between limonite and saprolite. Market participants will therefore need to monitor not only Indonesia’s total nickel ore production quota for 2027 but also its distribution by ore grade and the commissioning schedules of major HPAL projects.
Note: This article is published as part of a content exchange agreement between SteelDaily and BigMint.
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