The simultaneous closure of the Strait of Hormuz to commercial shipping and China's full export ban on sulphuric acid have driven sulphur prices up more than 50% and doubled acid prices in key markets. More than half of global 2026 production of lithium, cobalt, rare earths, and battery materials is now exposed to the shortage. This is not a pricing story. It is a story about whether critical mineral processing can continue at all.
Introduction
Sulphuric acid is not a glamorous commodity. It does not have a futures contract that retail investors follow, and it rarely appears in headlines about the energy transition. Yet it is the workhorse chemical that makes most of that transition physically possible. It leaches lithium from hard rock. It separates rare earth elements from ore. It extracts nickel and cobalt from laterite deposits. Without a reliable supply of sulphuric acid, a very large portion of the battery supply chain simply stops.
In 2026, that supply has been hit by two simultaneous shocks of historic proportions. The first is the effective closure of the Strait of Hormuz since 28 February, following the launch of Operation Epic Fury and Iran's retaliatory declaration closing the strait to commercial shipping. The second is China's full export ban on sulphuric acid, announced on 10 April 2026 and running through at least the end of August. Together, these two events have driven sulphur prices up more than 50% and pushed acid prices in some regions to more than double their pre-crisis levels.
Benchmark Mineral Intelligence estimates that more than half of global 2026 production of lithium, cobalt, rare earth elements, and battery materials is directly exposed to this combined supply shock. The question is no longer just about cost. It is about physical availability. As Will Talbot, Benchmark's raw materials research manager, put it in May: "The outstanding risk is that more critical minerals players cut production or even shut down operations entirely."
This article traces how the crisis developed, what it means for specific parts of the battery and critical minerals supply chain, and why the stock market volatility of late August is only the most visible symptom of a much deeper structural problem.
The Hormuz Closure: How a Geopolitical Event Became a Chemical Supply Crisis
To understand why sulphuric acid is in short supply, you first need to understand where sulphur comes from. The overwhelming majority of traded sulphur is a by-product of petroleum refining and natural gas processing. You do not mine sulphur deliberately in most cases; you recover it because environmental regulations require you to strip it from hydrocarbons before they are burned or sold. That means the world's largest sulphur exporters are concentrated wherever large-scale oil and gas processing happens to occur: the Persian Gulf.
Qatar's Ras Laffan Industrial City alone processes over 70 million cubic metres of natural gas per day, generating enormous quantities of sulphur as a by-product. The region as a whole supplies around a quarter of global sulphur and roughly 44% of global seaborne sulphur trade. Under normal conditions, that sulphur leaves the Gulf in bulk carriers transiting the Strait of Hormuz. On 28 February 2026, those conditions ended.
Iran closed the strait to commercial dry bulk traffic following strikes on its nuclear and military infrastructure. The effect on sulphur markets was immediate. Kpler, which tracks vessel movements in near-real time, recorded a cargo build-up as loaded sulphur vessels queued in the Gulf with no exit. By April, more than 600,000 tonnes of granular sulphur was effectively stranded across vessels in the region. Global sulphur exports fell 45% below their end-of-February levels.
The strait has since followed an unstable pattern: a partial reopening after a US-Iran ceasefire in mid-June, then an effective closure again from early July after renewed attacks on commercial vessels. As of 25 August 2026, only one vessel was recorded crossing the strait on 16 August, against a pre-crisis baseline of approximately 73 transits per day. Iranian state media published a list of 46 vessels it designated as non-compliant with its transit arrangements, threatening fines, detention, seizure, or confiscation. War risk insurance premiums have risen 476% since 26 February. The partial closure of the strait has disrupted approximately four million metric tonnes of sulphur exports per year, or around 18% of global seaborne sulphur trade.
The price consequences have been severe. Sulphur trading near $525 per tonne FOB Middle East in February reached the mid-$700 range by May and approached $900 per tonne by June. ADNOC raised its May sulphur price by $160 per tonne in a single adjustment. Mediterranean delivered prices briefly reached $920 to $940 per tonne in early May, described by CRU as the highest level recorded since its assessment began in 2011. Turkey's August tender settled at $849 to $912 per tonne, a 24% increase from June alone.
China's Export Ban: Removing the Relief Valve
As the sulphur shortage was already tightening markets, China announced on 10 April 2026 that it would halt sulphuric acid exports from May, replacing an existing 700,000-tonne annual quota with a complete cessation. Bloomberg broke the story; Acuity reported the restriction could last throughout 2026. The National Development and Reform Commission subsequently confirmed the ban covered acid produced as a by-product of copper and zinc smelting, the category that accounts for the bulk of China's export volume.
The scale of China's role in global acid supply makes this decision consequential in a way that a similar ban from almost any other country would not be. China accounts for more than 40% of global sulphuric acid production, with total capacity around 177 million tonnes in 2025. It accounted for 45% of the roughly 10 million tonnes shipped from Asia last year, and approximately 23% of global exports. In 2025, its acid exports surged 73% to 4.65 million tonnes, a record. The reversal from that record export level to a near-total ban represents a structural shift, not a temporary disruption.
China's reasoning is rooted in food security rather than geopolitical competition, at least directly. Lynn Song, chief economist for Greater China at ING Bank, explained: "I'd imagine the intention would be to secure fertiliser supply, which is currently at risk thanks to the blockage of the Strait of Hormuz, which accounts for around a third of seaborne fertiliser trade as well as a lot of global sulphur exports." China is protecting its own phosphate fertiliser production pipeline at a moment when global sulphur inputs are constrained. The ban is the latest in a series of escalating resource controls: Beijing suspended phosphate fertiliser exports in December 2025, extended restrictions to nitrogen-potassium blends in March 2026, and has now restricted between half and three-quarters of its fertiliser exports in some form.
The impact on key buying nations has been immediate. Chile, which imports more than one million tonnes of Chinese sulphuric acid every year, is facing a significant supply gap. Around a fifth of Chilean copper production relies on solvent extraction and electrowinning, a process that is entirely dependent on acid supply. Sarah Marlow, acid editor at Argus Media, said: "If the suspension is enforced for the full year, the Chileans will be faced with even higher prices than we are seeing today." Spot acid prices in Chile had already climbed above $440 per tonne by late spring. Indonesia, the second-largest buyer of Chinese acid in 2025 with imports of 476,000 tonnes over the May-to-December period, has seen prices rise to $380 to $400 per tonne, with transactions reported in the high $390s.
What This Means for Battery Materials: The Benchmark Findings
The practical consequences for critical mineral processing are extensive and, in some cases, severe. A Benchmark Mineral Intelligence special report published in late May 2026 provided the most detailed public assessment of the exposure. The headline finding: more than half of global 2026 production of lithium, cobalt, rare earth elements, and purified phosphoric acid is exposed to shocks in sulphur and sulphuric acid markets.
The breakdown by commodity is striking. Roughly four-fifths of projected 2026 cobalt supply is tied to acid-based refining. Around three-fifths of rare earth element output depends on acid-based separation. A little over half of lithium production is exposed. For high-purity manganese sulphate monohydrate, used in manganese-containing batteries, the exposure is 100%. These are not marginal or peripheral processes; they are the mainstream production pathways for materials that sit at the core of the energy transition.
For hard-rock lithium operations, the cost impact has been particularly sharp. Before the crisis, sulphuric acid represented approximately 3% of the operating costs of producing lithium chemicals from spodumene and other hard-rock sources. That figure has risen to around 11%, overtaking energy as the largest individual cost component. Benchmark estimates that acid now contributes 22% of total hard-rock lithium conversion costs and has become, in its words, "the single most volatile and material input" in lithium processing. Battery-grade lithium carbonate prices in China have risen approximately 65% in US dollar terms so far in 2026.
Nickel processed via high-pressure acid leaching (HPAL) faces a different but equally serious problem. HPAL plants, which are central to the Indonesian nickel industry, use more than 10 tonnes of sulphur to produce a single tonne of nickel. Indonesia sourced 76% of its sulphur imports from the Middle East in 2025. With that supply cut off, Indonesian buyers are now competing directly with Chilean copper producers for smelter acid by-product from Japan and South Korea. Benchmark estimates that sulphur now represents 42% of HPAL nickel costs, up from 26% before the conflict. Compounding the problem, HPAL plants have no partial-output mode: they operate at full capacity or they shut down. Some hold only one to two months of sulphur inventory.
Copper production via solvent extraction and electrowinning faces a similar divide. Integrated producers such as Codelco, which generate their own acid from smelter by-product, are largely insulated. Non-integrated operators such as BHP Escondida and Antofagasta, which procure from the seaborne market, are fully exposed to the current squeeze. Acid consumption in copper leaching ranges from three tonnes per tonne of cathode at high-grade deposits to 22 tonnes per tonne at ultra-low-grade ones, meaning the highest-cost producers are the most vulnerable. The IEA's 2026 Critical Minerals Outlook confirmed the broader picture, noting that disruptions to sulphur exports had increased production costs and heightened supply risks across metals and battery-material value chains. Building on my earlier analysis of midstream vulnerabilities in August, the acid crisis illustrates precisely why the hard part of supply security lies in the middle of the chain, not at the mine face.
Stock Market Signal: Rare Earth Equities and What They Are Actually Saying
On 21 and 22 August 2026, rare earth equities surged while the S&P 500 barely moved. USA Rare Earth (USAR) rose 8% to $18.40. Critical Metals (CRML) climbed 10% to $6.37. MP Materials (MP) added 5% to $58. The VanEck Rare Earth and Strategic Metals ETF (REMX) jumped 6%. These moves were described in financial media as part of a macro rotation into hard assets, partly driven by the 30-year Treasury yield sitting at 5.19%, near its 94th percentile over the prior year. Elevated long-duration borrowing costs have historically pushed capital toward scarce physical commodities and the companies that extract them.
What the equity moves actually reflect, though, is the market pricing in a sustained disruption to the processing inputs that rare earth producers depend on. Rare earth separation is heavily acid-intensive. Approximately three-fifths of rare earth production is exposed to the sulphur and sulphuric acid shock, according to Benchmark. A company that mines rare earths but cannot process them at competitive cost is worth less, but a company with domestic or contracted acid supply is worth more. The market is beginning to draw those distinctions.
The context matters. Rare earth equities in 2026 have traded primarily on US trade and industrial policy rather than on earnings fundamentals. USA Rare Earth was still more than 50% below its 52-week high as of mid-August, even after rising 55% year to date, which reflects the violent sentiment swings that characterise the sector. MP Materials, more established with $108.5 million in Q2 revenue and $28.5 million in adjusted EBITDA, is a more grounded proxy for where institutional money is moving. The broad bid across the critical-resources complex on those two days, with no corresponding move in the wider market, is worth taking seriously as a signal that sophisticated investors are beginning to price the acid supply crisis into their models.
Why This Crisis Is Different: Structure, Not Cycle
It is tempting to frame the sulphuric acid crisis as a price spike that will correct once the geopolitical situation normalises. The 2008 sulphur spike, which was demand-driven and fuelled by the fertiliser supercycle, did correct. But analysts and the IEA have been careful to distinguish what is happening in 2026 from that precedent. The 2026 disruption is a supply destruction event, not a demand expansion. The resolution depends primarily on geopolitical and military developments rather than conventional supply-demand rebalancing.
Several structural features make a quick correction unlikely even if the strait partially reopens. First, infrastructure at Qatar's Ras Laffan gas processing complex has been damaged, reducing the forward production pipeline. Second, Qatari, UAE, and Kazakh supply tonnes are substantially committed under long-term contracts to India and Morocco. Even when the strait fully reopens, not all of the stranded inventory will reach the spot market, because a significant share is already contractually obligated. Third, India's sulphur export activity has virtually ceased since May 2026, removing a supplementary supply source that had been filling gaps during Q1.
China's ban adds a fourth structural complication. Its acid exports surged to a record 4.65 million tonnes in 2025 precisely because other markets needed the supply. The reversal of that flow removes nearly three million tonnes of annualised supply from the seaborne market annually. Japan and South Korea can partially substitute, but only a fraction of the shortfall. Sasa Jarvis, a partner at McMillan LLP with expertise in mining, summarised the compound effect well: "If China is indeed curbing sulphuric acid exports, this could quietly reshape metals markets, particularly when sulphur from the Middle East is already constrained." The three chokepoints, geographic bottlenecks, by-product dependence, and policy control, have converged in a way that no single mitigation strategy can quickly address.
Forward price forecasts from multiple commodity intelligence providers suggest global sulphur prices will remain in the $0.36 to $0.52 per kilogram range for the rest of 2026, assuming continued Middle East supply disruption and firm battery material demand. A ceasefire could release some supply and ease prices, but the contractual and infrastructure constraints mean the correction would be gradual rather than sharp.
What Comes Next
The immediate priority for governments and producers is physical supply security, not price management. Several HPAL plants in Indonesia are operating on one to two months of sulphur inventory. Chilean copper producers are competing with those same plants for smelter acid from Asian by-product suppliers. The IEA has already flagged that fertiliser producers in India and Brazil have cut operating rates by 15 to 20% due to acid and sulphur shortages. Governments facing food-price inflation are likely to prioritise fertiliser supply over battery material production, which means the acid that does reach the market could be increasingly steered away from mining and toward agriculture.
For the critical minerals industry, the medium-term lesson is already clear. Supply security cannot be achieved at the mine face alone. Processing inputs, logistics corridors, and midstream chemical supply chains are equally decisive. The vulnerability of HPAL nickel, hard-rock lithium, rare earth separation, and cobalt refining to a single inorganic chemical, sourced from geographically concentrated by-product streams, represents a structural risk that no amount of new mine development can remedy on its own.
Policy responses are still forming. The US, EU, and allied governments have been focused primarily on securing mine permits and offtake agreements. The acid crisis is likely to accelerate attention to processing chemistry and feedstock security: long-term sulphur supply agreements, domestic sulphuric acid production incentives, and potentially strategic acid reserves analogous to strategic petroleum reserves. None of these responses will be fast.
In the near term, markets will continue to price the shortage through both commodity prices and equity valuations. The rare earth equity surge of 21 to 22 August is unlikely to be the last such episode. As long as the Strait of Hormuz remains effectively closed and China's export ban remains in force, every quarter of earnings from battery material producers will carry an acid cost line that is larger, more volatile, and harder to hedge than anything the industry planned for when it built its current processing infrastructure.