【By Guan察者网 Liu Bai】With the support of Chinese enterprises, Indonesia, a major global nickel producer, may once again witness a boom in its aluminum industry.
Bloomberg reported on July 9 that China's leading metal industry giants are injecting strong momentum into Indonesia's aluminum industry through projects worth billions of dollars. The report pointed out that the scale of these projects is comparable to China's large-scale investment in Indonesian nickel mines a decade ago, which could shake up the global aluminum market.
Regarding the challenges that Chinese enterprises still face, such as pressure on aluminum prices and power supply, an European industry analyst said outrightly: "Don't doubt the capabilities of the Chinese people."
Indonesia possesses one of the world's richest nickel resources, with over 22% of the global reserves, making it a key region for the emerging new energy battery industry.
Ten years ago, Indonesia's nickel production accounted for only about 7% of the global total. Now, with the help of cheap coal power and Chinese smelting plants, this proportion has approached 60%.
Bloomberg believes that Indonesia's aluminum industry also faces similar opportunities. In the context of domestic restrictions on production capacity, Chinese metal companies such as Shanshan Holding Group, Hongqiao Group, and Nanshan Aluminum are turning to Indonesia, Southeast Asia's largest economy, to invest in building new smelters and refining plants. Goldman Sachs estimates that by the end of this decade, Indonesia's aluminum production could increase fivefold.
Aluminum is widely used in multiple areas, including beverage cans, robots, and electric vehicles. At present, the question is whether Chinese capital can continue to flow into Indonesia while not undermining the market prospects of this energy-intensive metal, which has become a concern for metal traders.
"In the next five years, Indonesia will become the center of the global aluminum industry," said Alan Clark, director of the metal consulting company CM Group. "Looking back at the development of the global nickel industry and seeing the current aluminum situation, it is truly worth paying attention to."
Nickel mine in Raja Ampat Island, Reuters
The report noted that thanks to technological innovation, Indonesia's nickel industry once caused a storm in the industry. Although Indonesia's bauxite reserves are far less abundant than low-grade nickel ore, they are still sufficient to support a substantial smelting industry, supported by cheap labor and coal-fired power generation.
For Indonesian leaders who are eager to develop manufacturing to create jobs and drive economic growth, the prospect of replicating the success of the nickel industry is very attractive, which has prompted former President Joko Widodo to issue an order in 2023 to ban bauxite exports.
The construction cost of a refining plant is usually around $1 billion, a significant investment, but for many Chinese enterprises hoping to secure raw material supplies, this investment is worthwhile.
This year alone, three new alumina refineries will come online. According to data from the consulting firm CRU Group, at least three more will be completed by the end of 2027, helping Indonesia's alumina capacity to grow more than fivefold, enabling the country to rise to the ranks of the world's major aluminum producers.
In terms of smelting, Indonesia is also making significant progress. Goldman Sachs said that there are already two smelters operating in the country, and four more are expected to come online by the end of this decade.
Aguistinus Tan, President Director of PT. LAMAN MINING, said that some Chinese metal giants are proposing to introduce their factories in phases or provide financial support to local companies that have difficulty securing funds.
"Some factories are about to close, and they proposed to acquire the equipment of these factories," Tan said. His company plans to start building its own refinery next year. "It doesn't matter if we are far from the final product users, but being far from raw materials is not acceptable."
Shanshan Group's moves are particularly noteworthy. With its massive scale and strict cost control, the group played a key role in the rapid development of Indonesia's nickel industry. Shanshan's first aluminum smelter came online in 2023, and a much larger smelter is scheduled to come online next year.
"When Shanshan entered the aluminum industry, everyone was shocked. They are diversifying their business," said Andy Farida, an aluminum analyst at the European market consulting firm Fastmarkets.
Production line at China Aluminum Shenyang Non-Ferrous Metal Processing Co., Ltd. in Shenyang, Liaoning. Visual China
The report also pointed out that the prospects for Chinese enterprises entering Indonesia's aluminum industry still face some challenges. The success or failure of related projects largely depends on the ability of enterprises to withstand short-term pressure on aluminum prices. A Citigroup analyst believes that if aluminum prices remain around $2,500 per ton, the global aluminum supply increase, including Indonesia, will be very limited.
Additionally, veteran analyst Liu Defei, who previously worked at Rio Tinto Mining and the Chinese research institution Antaike, said that many people in the market believe that most of these plans will not ultimately be realized, one reason being the uncertainty of power supply. "If smelters cannot obtain stable and cheap electricity, as well as infrastructure with cost feasibility, it would be like walking into a dead end."
However, Indonesia's rich coal resources may once again provide the required energy for the aluminum industry, just as they did in promoting the development of the nickel industry.
The most critical issue is whether Indonesia has the capability to extract enough bauxite to support the ambitions of Chinese enterprises.
"I don't think we should doubt the capabilities of the Chinese people," said Farida. "If they can replicate the success of the nickel industry, it's not surprising that the aluminum industry will make a big splash in the future."
In April this year, Nurul Ikhwan, Deputy Minister of Investment and Downstream Industries of Indonesia, wrote an article stating that in the past five years, Chinese investments in Indonesia mainly flowed into basic metal processing industries, accounting for 44%, concentrated in the downstream smelting industry of nickel, with cumulative investment reaching as high as $13.9 billion. Large Chinese nickel smelting parks have taken root in Sulawesi and Maluku Islands, driving local industrial development and social prosperity.
Not only that, Chinese investors have also built alumina projects on Bintan Island and Kalimantan Island, and produced copper foil based on electrolytic copper from the East Java Freeport, deeply participating in the bauxite and copper ore industry chain in Indonesia, actively responding to the Indonesian government's strategy to promote resource downstreaming.
Besides the basic metal processing industry, China's key investment sectors in Indonesia also include transportation, warehousing, and telecommunications ($6.4 billion, 20%); chemical and pharmaceuticals ($3.3 billion, 10%); industrial parks and real estate ($2.2 billion, 7%); power, gas, and water ($1.8 billion, 6%), etc.
"The cooperation between China and Indonesia in investment has already yielded fruitful results. The deeper it goes, the more potential Indonesia shows. Beyond traditional mineral resources, Indonesia also holds a lot of opportunities in areas such as commodity development, green transition, and full industry chain construction, waiting for Chinese investors to further explore," wrote Nurul.
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