By Mai Nguyen and Siyi Liu
(Reuters) -&nbsp;Nickel&nbsp;smelters&nbsp;in top producer Indonesia are making rare purchases of&nbsp;ore&nbsp;from the&nbsp;Philippines&nbsp;to ease tight supplies, people familiar with the matter said, upending trade flows of the raw material and pushing up costs across the&nbsp;supply&nbsp;chain.
Jakarta recently delayed the issuing of mining quotas and suspended operations at a key site of state miner Aneka Tambang (Antam) after an investigation into corrupt practices in issuing mining allowances.
While mining at other sites continues and Indonesia, which accounts for half of global mined&nbsp;supply, has said there is no shortage of&nbsp;ore, prices have risen about 8% this week, following a 10% surge a week earlier,&nbsp;local&nbsp;buyers say.
Some firms are now buying&nbsp;ore&nbsp;from neighbouring&nbsp;Philippines, the world's No. 2 supplier, in the event that new mining quotas are further delayed, said three smelter managers, two&nbsp;nickel&nbsp;traders and a Chinese analyst.
All declined to be identified because they were not permitted to disclose the trade information publicly.
"(We) started imports from this month. It is economical," said an official at a major smelter in Indonesia.
The person did not specify how much the smelter is buying but said the purchases are of low-grade limonite&nbsp;ore.
Indonesian&nbsp;miners will prioritise high-grade&nbsp;ore&nbsp;for their limited production quotas, the person added.
Indonesia imported 53,864 metric tons of&nbsp;nickel&nbsp;ore&nbsp;in the first half of 2023, up from 22,503 tons for all of 2022,&nbsp;Indonesian&nbsp;trade data showed.
But imports from the&nbsp;Philippines&nbsp;only started in May, and all arrived at Morowali port in a huge&nbsp;nickel&nbsp;processing park run partly by Chinese&nbsp;nickel&nbsp;giant Tsingshan Group, the&nbsp;Indonesian&nbsp;data showed.
Tsingshan did not respond to a call and email seeking comment.
Volumes in the first half from the&nbsp;Philippines&nbsp;were less than 1,000 tons in&nbsp;nickel&nbsp;content compared to Indonesia's 1.6 million tons mined last year, data from the&nbsp;Indonesian&nbsp;government and the International&nbsp;Nickel&nbsp;Study Group (INSG) showed.
"The&nbsp;ore&nbsp;from the&nbsp;Philippines&nbsp;is generally lower grade than&nbsp;Indonesian&nbsp;material which will push operating costs higher due to lower production from same tonnage of&nbsp;ore," said Wood Mackenzie analyst Andrew Mitchell.
"But the&nbsp;ore&nbsp;is cheaper by comparison with domestic&nbsp;ore&nbsp;currently and so this will offset some of the rising costs," Mitchell said.
Indonesia exported much of its&nbsp;ore&nbsp;before&nbsp;a 2020 ban halted all shipments and attracted billions of dollars worth of investment in&nbsp;nickel&nbsp;smelting, mostly from Chinese companies.
Imports from the&nbsp;Philippines&nbsp;could rise to 100,000 tons for July and August combined because of the&nbsp;supply&nbsp;tightness, according to Chinese consultancy Mysteel.
The&nbsp;Philippines&nbsp;mined 360,000 tons of&nbsp;nickel&nbsp;in&nbsp;ore&nbsp;in 2022, or 11% of global supplies, according to INSG.
Rising demand for&nbsp;ore&nbsp;from the&nbsp;Philippines&nbsp;is also pushing up prices in China, as buyers stock up due to tighter&nbsp;Indonesian&nbsp;supplies and ahead of the rainy season in the&nbsp;Philippines&nbsp;starting in October, said a Chinese trader.
Philippines&nbsp;1.3% grade&nbsp;ore&nbsp;landed at China's Lianyun port surged 20.6% in the past month to $41 a ton, the highest since March, Mysteel data showed.
&nbsp;
(Reporting by Mai Nguyen in Hanoi, Siyi Liu in Beijing, Fransiska Nangoy in Jakarta, Enrico dela Cruz in Manila and Beijing Newsroom; Editing by Dominique Patton and Kim Coghill)

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Indonesian nickel smelters turn to Philippines for ore as local supply tightens