Indonesia is significantly increasing its aluminum production capacity, relying on abundant coal reserves to power new smelters. This expansion comes as global aluminum supplies are disrupted by the war in Iran, which has slowed production in the Middle East and driven up prices for the metal. The move, however, runs contrary to international efforts to curb carbon emissions.
Global aluminum prices have fluctuated due to fuel shortfalls and attacks on infrastructure impacting Middle Eastern production. The region typically accounts for about 9% of the world's aluminum output, but this is expected to drop significantly this year. Energy shortfalls have already led major producers like Emirates Global Aluminium to alter deals and Qatar Aluminium Ltd. to reduce output, while strikes have damaged facilities in Bahrain.
Aluminum, a lightweight metal essential for industries ranging from automotive and aerospace to consumer electronics, saw prices climb to as high as $3,780 per metric ton in June from around $3,150-$3,250 before the conflict. The supply uncertainty has prompted end-users to seek alternatives, accelerating a shift that has placed Indonesia in a more prominent position in the global market.
Indonesia's Ambitious Aluminum Goals
By the end of the decade, Indonesia aims to quadruple its alumina output to 32.5 million metric tons and increase its aluminum production from approximately 1 million metric tons in 2025 to 14.5 million metric tons by 2030. Chinese companies are heavily involved in this expansion, having invested in about three-quarters of the planned Indonesian projects. China, which produces 60% of the world's aluminum, is seeking to reduce pollution from its domestic smelters and has invested between $5.5 billion and $6 billion in Indonesia's aluminum industry, with projections of this figure soaring to $30 billion by 2030.
Environmental Concerns and "Captive Coal"
The expansion is largely powered by "captive coal" facilities, private power plants built exclusively to supply aluminum smelters. These operations are a cause for concern among environmental groups, as public data on their emissions is limited. The reliance on coal, the most polluting major fossil fuel, directly contradicts Indonesia's commitments to reduce coal usage and global climate change mitigation efforts.
The aluminum industry itself accounts for approximately 2% of annual global greenhouse gas emissions. Environmental researchers estimate that if all planned Indonesian projects commence operation by 2030, the country's bauxite reserves could be depleted in less than 12 years.
Environmental advocates criticize this approach, labeling it as "greenwashing." They argue that powering aluminum production, which is then marketed as a component for clean technologies like electric vehicle batteries, with coal is a significant contradiction. While cleaner energy sources like hydropower are possible, they are more costly and take longer to implement, leading Indonesia to prioritize speed to capitalize on current market opportunities created by global supply disruptions.
"This is really running against the grain, against the spirit, of the commitment to the climate movement," said Putra Adhiguna of the Energy Shift Institute. Building more coal-fired power plants for aluminum production is also expected to worsen air quality in Southeast Asian cities, further impacting local communities.