Indonesia appears to be replicating its successful nickel strategy – banning ore exports to capture downstream added value – for the aluminium market. While this has spurred initial growth in metallurgical grade alumina (MGA) refining and aluminium smelting, the aluminium market presents different challenges. It is larger and more exposed to carbon-related costs. Consequently, Indonesia’s aluminium story not only hinges on parlaying foreign capital into scale for economic growth, but also on securing low-carbon power to meaningfully compete in an increasingly carbon-conscious world.
Aluminium and nickel: A contrast in markets, scale and priorities
Aluminium and nickel differ markedly in their demand size and end-use exposure. Aluminium is an extensively large market – estimated between 20-30 times larger than nickel – serving broad sectors such as transport, construction and packaging, where it is often a finished product. Meanwhile, nickel’s smaller market is defined by its primary role as a component within stainless steel and battery cells.
Despite its larger market size, aluminium demand growth averaged 4.5% year-on-year over 2005–2025 compared to nickel’s battery-driven swings partly tied to EV cathode chemistry shifts. Nickel demand growth averaged 5.1% year-on-year over the same period, including a notable 18.6% jump from 2020 to 2021, charged by its use in battery applications amid the electrification trend.
As such, both metals call for different strategies. Nickel focuses on flexibility (conversion between Class 1 and Class 2 products) and speed-to-market (amid battery chemistry shifts), with the main challenge being technical and technological expertise, particularly for hydrometallurgical routes such as high-pressure acid leaching (HPAL).
In contrast, the priority stack for aluminium is led by power and its carbon profile. Smelting alumina into aluminium is a power-intensive process, and electrolytic cells must be kept running or molten metal can risk solidifying, making production restarts costly. As such, access to abundant, low-cost and, increasingly, stable low-carbon power is the decisive factor for sustainable production.
This poses a strategic challenge for Indonesia. Its nickel success story was built on a battery-driven upswing that enabled rapid expansion and strong returns, which aluminium is unlikely to replicate. Instead, aluminium success will largely depend on securing an edge in power and value-chain security rather than relying on demand surges.
The push for resource nationalism under the hilirisasi policy
Indonesia, a mineral-rich country with sizeable bauxite and nickel reserves, looked to capture more value from its resources by introducing the hilirisasi (downstreaming) agenda alongside the 2009 Mining Law. This laid the groundwork for ore export restrictions to encourage domestic refining and smelting. The underlying bet was that near-term losses to ore export revenues and mining jobs would be offset by long-term gains from building domestic processing capacities. Subsequently, between 2017–2023, Indonesia successfully attracted billions in foreign investment into its metals and mining sector.
A nickel re-run: Foreign investment in Indonesia’s aluminium industry
As the immediate processed form of bauxite, Indonesian metallurgical grade alumina (MGA) production understandably grew first. Over 2014–2024, MGA refining is estimated to have grown by a whopping 4.1 Mt, while aluminium smelting grew at a relatively conservative ~0.3 Mt over the same period. This expansion is highly backed by Chinese companies looking to offshore production, particularly as China introduced a domestic cap.
However, the pace is slower than Indonesia’s nickel boom, partly because its bauxite reserves are not as dominant as its nickel reserves. Despite this, Indonesia can be viewed as a relatively stable alternative to Guinea, the largest bauxite reserve holder. Risks surrounding Guinean supply (military coup, mining permit withdrawals) presents Indonesia as a relatively attractive bauxite base for companies looking to diversify aluminium production globally.
The power narrative of aluminium smelting
As aluminium smelting is particularly power-intensive, electricity impacts both the cost position and carbon profile of assets, which in turn influences market access and relative competitiveness.
The industry’s relatively flat cost curve means producers’ costs are closely clustered, making power a differentiator for profitability. Differences in aluminium smelter power tariffs typically reflect the power mix, grid infrastructure and/or structure of regional power markets. In many regions, gas and coal prices are key drivers of power tariffs, and costs also depend on power procurement – mostly either self-generated or purchased.
In addition to shaping costs, power can also influence where a smelter sits on the emissions curve. Compared to the cost curve, aluminium’s emissions curve is more step-like, illustrating bands by power source and prevailing regional smelter power mixes. Renewable-powered assets have the lowest emissions, while coal-based smelters have the highest. This presents a challenge for Indonesia, where coal dominates the energy mix.
Regardless, a gradual transition towards lower-carbon power is possible as Indonesia expands its renewable capacity. For example, PT Alamtri Minerals Indonesia’s 1.5 Mt Kaltara smelter reportedly plans to commission 0.5 Mt capacity on coal, add a coal-plus-renewables power mix for the next 0.5 Mt of capacity and ultimately supply the final 0.5 Mt capacity with hydropower. This mirrors a trend where producers, even in fossil fuel rich regions such as the GCC, are integrating renewables to produce low-carbon aluminium, thereby strengthening their competitiveness and margins in carbon-conscious markets.
The Indonesian aluminium juggernaut
Against an already flat cost curve, Indonesia’s move in establishing a coal-powered aluminium sector may boost short-term competitiveness. Coal is the known, reliable engine for Indonesia’s aluminium transformation, and forcing an immediate requirement of costlier low-carbon energy in its nascent aluminium industry can stunt growth, in addition to being financially risky (especially before revenue has fully materialised). Further, in an environment where margins are already narrow, the added cost of decarbonisation becomes financially challenging.
The Indonesian aluminium surge is coming – charged by the same combination of foreign capital and Indonesian resource base that also transformed the global nickel market. Its scale and competitiveness will have implications for market participants:
- Producers must counter new low-cost/higher-carbon competitors and monetise any possible cost or low-carbon advantages.
- Consumers must consider pricing true all-in costs (considering carbon and reputational risks) and potentially reconfigure procurement for in light of costs, supply security and ESG priorities.
- Investors cannot ignore competitive new assets with potentially attractive returns in today’s environment yet could face more decarbonisation in the future.
CRU’s consulting expertise across the aluminium, power and sustainability sectors can help navigate what will likely be another pivotal investment wave.
