Indonesia vows to invest more in aluminium supply chain in strategy for critical metals

Indonesia is preparing to invest more in its aluminium supply chain as part of its wider critical metals strategy, Fastmarkets understands

Further investment in Indonesia’s raw materials supply chain comes as its bauxite export ban remains firm, with the country focusing on developing its own aluminium infrastructure.

Political focus on integrated metals supply chain

A headline part of Indonesia’s 20-year development plan – known as the “2045 Golden Indonesia Vision” – is to transform the country into the world’s fifth-largest economy and a crucial element in achieving that goal will be the development of an integrated metals supply chain, in which the focus will be on “down streaming” a number of Indonesia’s key commodities, including bauxite, nickel and copper.

To do this, the government aims to develop its infrastructure and connectivity to boost competitiveness and to invest in structural reforms through the simplification of regulations and licensing.

One aspect of this is the development of local industry through an export ban on unprocessed mineral exports. And the success of Indonesia’s nickel ore export ban has rippled through into the aluminium industry, with establishment of a bauxite export ban to encourage the development of downstream production.

“Indonesia’s ban on the exports of unprocessed ores has been spectacularly successful for nickel,” Fastmarkets analyst Olivier Masson said. “The country is now by far the largest miner of nickel, accounting for 55% of global mine supply in 2023, while the country accounted for 42% of global refined supply in the same year,” 

“The [Indonesian] government’s support, coupled with China’s insatiable need for nickel, has forced Chinese companies to invest in refining capacity in Indonesia. The first wave of investment was to produce nickel pig iron (NPI) for both countries’ stainless steel industries. The second wave of investment is aimed at supplying the battery industry’s growing [need for] nickel,” he added.

Following the election of former president Joko Widodo’s son, Gibran Rakabuming Raka, as vice president earlier in the year, analysts expect political continuity to be reflected in policy.

“It’s a [political] continuation of a dynasty, [and this will be] reflected [by taking the previously successful] approach used to develop the nickel industry, and applying that template to aluminium,” Fastmarkets analyst Andy Farida said.

Farida said Indonesia’s steady GDP growth – despite a dip in the midst of the pandemic – means it is well positioned to achieve success in its ambitions for downstream investment.

In particular, Farida noted that Indonesia’s GDP per capita increased from $1,572.80 in 2006 to $3,558.82 in 2016 – when nickel investment took off.

Bauxite ban

To encourage the further development of the downstream domestic metals sector, Indonesia announced a ban on bauxite exports in 2021; eventually confirming the move in May 2022, with the ban officially coming into effect on June 10, 2023. That ban is set to continue for the foreseeable future, Fastmarkets understands.

Indonesia is the world’s sixth-largest producer of bauxite, according to the US Geological Survey with reserves of 1 billion tonnes – but it only produced 20 million tonnes of bauxite in 2023.

Indonesian bauxite once represented the major share of China’s imports of the material, accounting for roughly 75% of the total until Indonesia instigated its first export ban in 2014. That ban was ultimately rescinded in 2017, only to be replaced by the current ban in 2023.

So China now sources the bulk of its imported bauxite ore from Guinea and about 70% of China’s annual bauxite imports come from the West African country.

But with Indonesia now exploring investment opportunities in its aluminium sector, further bauxite and alumina supply out of Southeast Asia could drastically change China’s reliance on Guinea, subsequently affecting the wider aluminium value chain.

Alan Clark, a director at CM Group told delegates in the US at Fastmarkets’ Bauxite & Alumina Conference in Miami in April, that, as Indonesia develops its downstream capabilities, Guinean bauxite exports would go down “because alumina would be produced in a region where the alumina is needed, in a jurisdiction where the bauxite is a good grade, so the alumina would be produced at a competitive cost and the alumina would be likely to find its way back into China.”

Inalum to quadruple output

Plans to increase production at the country’s aluminium smelters are well under way, but to fully achieve its expansion plans Indonesia requires ample supply of domestic bauxite and alumina.

In February, Fastmarkets heard that the Indonesian government had authorized mining quotas for an additional 14 million tonnes of bauxite, to ramp up its raw materials production. And sources told Fastmarkets the extra supplies would be used to feed Indonesia’s smelters and that the bauxite ban would remain in place.

One of the country’s key smelters, Indonesia Asahan Aluminium (Inalum), is working with Emirates Global Aluminium (EGA) to expand its aluminium output and currently has a primary aluminium capacity of around 275,000 tonnes per year. It hopes to expand that to 600,000 tpy, but sources told Fastmarkets that this was still subject to a feasibility study. Sources could not give a time indication for the completion of the project. 

Nonetheless, Fastmarkets heard that the government was eager to expand Inalum’s annual smelting capacity to 1 million tonne in due course.

Inalum’s smelter consumes around 500,000 tonnes, about half, of Indonesian alumina, with the remaining 50% sold to third parties. 

Indonesian units have begun to appear in the alumina spot market recently, with Australian supplies having become less reliable following Rio Tinto’s declaration of force majeure on cargoes out of Queensland ports and the curtailment of Alcoa’s Kwinana Alumina Refinery.

Fastmarkets calculated its daily benchmark alumina index, fob Australia at $506.43 per tonne on Wednesday June 19.

The index has increased by $155.90 per tonne, or 44%, from $350.53 per tonne on January 2 – largely in response to supply pressures in Guinea, Australia and India throughout the year.

Market participants told Fastmarkets they are closely watching Indonesia as a possible alternative to Australian alumina.

Global interest in Indonesia expands as EV manufacturers invest 

On June 14, Indonesia’s minister of industry, Agus Gumiwang Kartasasmita, said the country was aiming to produce 600,000 electric vehicles (EVs) by 2030.

The government will partner with four Chinese EV companies – Neta, Wuling, Chery and Sokon – to build an EV production and export hub in the country.

“Indonesia is well placed to take advantage and add value to develop its resources and elevate its importance because it is clearly becoming an important industrial arm of a post-industrial China,” Farida said.

Chinese brands topped the Indonesian market in April in terms of EV sales. The best-selling models are the Wuling Baojun Yundo, Chery OMODA E5 and Wuling Bingo, according to data from the Indonesian Automotive Industry Association (IAIA).

In January, the world’s largest EV manufacturer BYD announced that it will be investing $1.3 billion in the development of an EV factory in Indonesia, following the unveiling of three new passenger car models in Jakarta, to expanding its global footprint and cement its position as the dominant participant in the Indonesian auto market.

Apart from its use in bodywork, aluminium is a key material for EV “e-drive and battery pack housings, ballistic battery protection and cooling plates,” according to a report by Dutch bank ING.

But aluminium also has growing importance in conventional vehicles powered by internal combustion engines, because using the light metal to reduce a car’s weight allows the vehicles to use less fuel, and thereby reduces emissions.

According to consultancy firm Ducker Carlisle, the average amount of aluminium used per vehicle increased to 205kg in 2022, from 121kg in 2006, and is likely to reach 256kg in 2030.

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