Asia Pacific Materials: Sulphur, Nickel & Fuel — Energy Shock Persists
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Morgan Stanley argues that the ongoing energy shock will persist even if the Strait of Hormuz reopens. This dynamic will keep fuel markets tight, elevate the cost curve for Indonesian nickel producers, and improve refining margins across Asia. Higher energy prices are transmitting through to food, technology, and battery supply chains.
China's ban on sulphuric acid exports, following earlier reductions in fuel exports, has significantly increased processing costs for Indonesian nickel miners. Indonesia produces roughly 60% of the world's nickel. Companies like UNTR face further cost pressures from rising diesel, sulphur, and electricity expenses. However, local management teams expect to remain in the lower half of the global cost curve.
Meanwhile, sulphur prices have surged 20–25% above 2022 levels. This scarcity stems from the fact that half of Asia's seaborne sulphur typically transits the Strait of Hormuz. Asian refineries produce sulphur as a byproduct but have limited incentive to increase output due to high diesel crack spreads. Refiners will likely capture a $0.30 per barrel benefit, representing a 5–7% upside, from rising sulphur values. Ultimately, elevated energy and sulphur costs will impact metals, semiconductors, fertilizers, and battery production globally.