Aluminium – Indonesia’s Next Frontier

MCT Asia Trading — 18.05.2023

Indonesia possesses substantial bauxite reserves, the raw material for aluminium, particularly on the island of Borneo. Following the successful implementation of the export ban on nickel ore, and the jump start this policy has provided to the nascent domestic nickel processing industry, the Indonesian government has now set its sights on aluminium, with the development of a national aluminium industry as the next priority in keeping more of the mineral’s value within the national economy.

The goal is to develop a robust domestic aluminium industry by promoting local smelting and downstream processing activities. Similar to the approach taken with nickel, the Indonesian government has implemented export restrictions on raw bauxite to encourage domestic processing and value addition. In tandem, the government actively encourages the construction of aluminium smelters to process domestic bauxite into alumina, which is then further refined into aluminium.

White Aluminium by Golnar Sabzpoush Rashidi
Mirroring its success in the nickel sector, the government now provides a variety of incentives to attract investment to bauxite and aluminium. These incentives include tax breaks, import duty exemptions for machinery and equipment, and streamlined licensing processes. Additionally, the government offers infrastructure support, such as access to reliable electricity supply and industrial parks dedicated to the aluminium industry.

As was found in the development of policy toward nickel, collaboration with industry stakeholders is a key facilitating factor. The government has actively engaged with mining companies, associations, and investors, via policy dialogues, consultations, and partnerships to address challenges, ensure sustainable development, and foster a favorable investment climate, while also investing in infrastructure development to support the aluminium industry's growth. This includes expanding port facilities, improving transportation networks, and ensuring reliable power supply to smelters and industrial areas.

By focusing on the development of a national aluminium industry, the Indonesian government aims to capture more value from its bauxite resources, create employment opportunities, promote domestic industrialization, and reduce reliance on raw material exports. However, it's important to note that establishing a competitive aluminium industry requires significant investments, technological expertise, and favorable market conditions.