Indonesia is significantly expanding its aluminum production capacity, utilizing its abundant coal reserves to power new smelters. This strategy aims to capitalize on global supply chain disruptions, particularly those stemming from the conflict in Iran, which have impacted aluminum prices and availability.
The Middle East, typically a major aluminum producer, has seen its output curtailed due to fuel shortfalls and infrastructure damage. Fastmarkets, a commodities information agency, projects a 44% drop in regional output this year compared to 2025. This disruption has driven prices up, with a metric ton of aluminum trading as high as $3,780 in June, a significant increase from its pre-conflict price range of $3,150 to $3,250.
"When that supply is so unsure, end users look for alternatives," said Andy Farida of Fastmarkets. "The war has really accelerated this transformation and put Indonesia on the map."
Indonesia aims to quadruple its alumina output to 32.5 million metric tons and increase aluminum production from approximately 1 million metric tons in 2025 to 14.5 million metric tons by 2030. This ambitious expansion is heavily supported by Chinese investment. Chinese companies have invested an estimated $5.5 billion to $6 billion in Indonesia's aluminum sector, with projections indicating this could surge to $30 billion by 2030. China, which produces 60% of the world's aluminum but is seeking to reduce domestic pollution, has been investing in Indonesian projects as it faces its own environmental regulations.
To power these new aluminum smelters, Indonesia is constructing dedicated coal-fired power plants, termed "captive coal" facilities. The Centre for Research on Energy and Clean Air (CREA) is tracking 32 such prospective plants. However, data on the emissions from these facilities is limited, raising concerns among environmental researchers.
"This captive coal boom all over Indonesia is essentially not tracked. That is why it’s very concerning," said Syahdiva Moezbar of CREA in Jakarta. "It is a huge loophole, an elephant can go through the loophole. You say it’s a green product, but it is powered by coal... That’s definitely greenwashing."
This reliance on coal for aluminum production runs counter to Indonesia's stated climate commitments and its promises to reduce coal usage. The aluminum industry itself accounts for approximately 2% of annual global greenhouse gas emissions. If Indonesia's planned projects become operational by 2030, CREA estimates the country's bauxite reserves could be depleted in under 12 years.
Environmental groups argue that this approach contributes to air pollution in Southeast Asian cities and negatively impacts local communities. While cleaner energy sources like hydropower are alternatives, they are considered slower and more expensive to implement, leading Indonesia to prioritize speed in capitalizing on current market opportunities. The Indonesian government classifies nickel and aluminum as "transition minerals," which can be used in clean technologies like electric vehicle batteries and solar panels, a categorization that critics argue allows for "greenwashing" despite coal-powered production.