Indonesia is ramping up aluminum production to take advantage of supply shortages in the Middle East stemming from the ongoing Iran war. The conflict has disrupted output from the region, which typically accounts for about 9% of global aluminum production but is expected to see a 44% drop this year compared to 2025. Aluminum prices have surged in response, trading as high as $3,780 per metric ton in June, compared to pre-war prices between $3,150 and $3,250.
Indonesia aims to substantially increase its aluminum capacity by the end of the decade, targeting a quadrupling of alumina output to 32.5 million metric tons and a rise in aluminum production from approximately 1 million metric tons in 2025 to 14.5 million metric tons by 2030. To power this expansion, the country is building dozens of coal-fired plants dedicated solely to aluminum smelting, known as captive coal facilities. China, which produces 60% of the world’s aluminum but faces domestic pollution restrictions, has invested heavily in these Indonesian projects, with investments projected to reach $30 billion by 2030.
Environmental observers have raised significant concerns about the expansion plans. The aluminum industry contributes roughly 2% of annual global greenhouse gas emissions, equivalent to approximately 1.1 billion tons of carbon dioxide equivalent yearly. Indonesia’s reliance on coal power for these new smelters contradicts the country’s stated climate commitments and pledges to reduce coal consumption. Energy experts note that aluminum production could utilize cleaner sources like hydropower, but such alternatives would require more time and capital investment than the coal infrastructure Indonesia is currently pursuing.
Analysts also point to a potential loophole in climate frameworks. Indonesia classifies nickel and aluminum as transition minerals since they can be incorporated into clean technologies such as electric vehicle batteries and solar panels. This categorization allows companies to maintain that coal-powered aluminum production aligns with climate goals, despite concerns from environmental groups that this constitutes greenwashing. The rapid pace of Indonesia’s expansion reflects the country’s effort to capitalize on the market opportunity created by Middle East supply disruptions before the situation stabilizes.
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