Indonesia sees aluminium opportunity in Middle East supply crisis, but coal is powering the race

CREA estimates that Chinese investment in Indonesia's aluminium industry currently stands at between USD 5.5 billion and USD 6 billion, and forecasts that figure could rise to USD 30 billion by 2030.

China currently produces around 60 per cent of the world's aluminium. Chinese companies began expanding into countries such as Indonesia after Beijing imposed a domestic cap on aluminium production in 2017 as part of efforts to address overcapacity.

Putra Adhiguna of Jakarta-based Energy Shift Institute said Indonesia's relatively fewer restrictions have helped attract investment.

The expansion also benefits from Indonesia's classification of aluminium and nickel as “transition minerals”, given their use in technologies such as electric vehicles and solar panels.

But that classification has drawn criticism because the production of these materials can still depend heavily on fossil fuels.

Binbin Mariana of environmental advocacy group Market Forces described the situation as a loophole that could allow coal-powered production to be presented as part of the clean-energy transition.

“You say it's a green product, but it is powered by coal... That's definitely greenwashing,” she stated. 

To learn about the market potential of aluminium dross, explore "ALuminium Dross Processing: Generation, Recovery & Strategic Roadmap"

Speed versus cleaner energy

Indonesia could power aluminium smelters with cleaner sources such as hydropower, but doing so would take longer and cost more. That is creating a choice between rapidly expanding capacity to capture an opportunity in the global aluminium market and developing slower, potentially cleaner energy infrastructure.

Putra Adhiguna said Indonesia is prioritising speed because of the opportunity created by the disruption to Middle East supply.

“The speed factor is really what is causing the havoc,” he said.

He added, “This is really running against the grain, against the spirit, of the commitment to the climate movement.”

The rapid construction of captive coal capacity is also raising concerns over its impact on local communities. Muhammad Al Amin of the Indonesian Forum for Environment, known as WALHI, said additional captive coal plants could worsen air pollution affecting Southeast Asian cities.

WALHI has campaigned against increasing coal use on Sulawesi, an important nickel-producing region.

“If companies want to expand captive coal to aluminum, I think it is very bad news and a very bad development,” Al Amin said.

He added that communities had already experienced the impact of captive coal developments.

“We have seen it, we have felt it — how communities suffer from the captive coal impact.”

Bauxite resources add another pressure point

If all the planned projects begin operating by 2030, CREA estimates that Indonesia's own bauxite reserves could be depleted in less than 12 years.

That adds another dimension to the country's rapid expansion: Indonesia is seeking to become a larger aluminium producer at precisely the moment when supply disruptions are creating an attractive market opportunity, but the scale of the planned growth could put additional pressure on its domestic mineral resources.

The result is an aluminium expansion shaped by three major forces, a global supply squeeze, strong Chinese investment and Indonesia's drive to build new smelting capacity quickly.

How that expansion develops will depend not only on Indonesia's ability to build the planned projects, but also on the energy sources used to power them and the resources available to sustain the growth.

To explore trade opportunities of aluminium consumables, visit AL Biz