After conquering nickel, Indonesia sets its sights on aluminium

{"text":[[{"start":13.6,"text":"The Indonesian island of Bintan, a short ferry ride from Singapore, is a popular weekend getaway for the city-state’s residents but recently it has become home to a more prosaic type of guest: Chinese aluminium companies."}],[{"start":27.9,"text":"In the island’s south-eastern corner, a facility majority-owned by China’s Shandong Nanshan Aluminium has become one of south-east Asia’s largest producers of alumina, the metal’s primary input."}],[{"start":39.2,"text":"The vast industrial park is part of a surge of Chinese investment that is reshaping Indonesia into a significant producer of aluminium, used in everything from household goods to defence and AI data centres."}],[{"start":51.6,"text":"The US-Israeli war with Iran has highlighted the vulnerability of the aluminium supply chain because the Middle East accounts for almost 10 per cent of global supply. Disrupted production and exports have driven prices to highs last seen in 2022, at the start of the war in Ukraine."}],[{"start":69.75,"text":"However, some analysts fear the Chinese-funded build-out, which is being driven by aluminium production caps at home, will repeat what happened to the nickel market, where rapid Chinese expansion in Indonesia led to an oversupply that depressed prices."}],[{"start":null,"text":"

"}],[{"start":84.9,"text":"Goldman Sachs estimates the country will account for 5 per cent of global primary aluminium production by 2030, up from 1 per cent now, and contribute to 40 per cent of global growth in production."}],[{"start":96.75,"text":"“With smelting capacity capped in China, companies are now expanding aggressively in Indonesia which, before the disruption in the Gulf, was raising concerns of oversupply in coming years,” said George Cheveley, a portfolio manager and metals and mining specialist at Ninety One."}],[{"start":113.8,"text":"The Indonesian government in 2023 banned exports of bauxite, the ore used to make aluminium, as it sought to boost earnings and industrial capabilities. This has forced companies to set up processing facilities in Indonesia, echoing what happened with nickel."}],[{"start":130.45,"text":"Big Chinese investments in nickel propelled the south-east Asian country to market dominance in a handful of years. Indonesia accounted for 65 per cent of global refined nickel last year, up from 6 per cent in 2015."}],[{"start":null,"text":""}],[{"start":144.29999999999998,"text":"The export ban came as Chinese aluminium producers, which dominate the global market, approached a domestic cap imposed by Beijing in 2017. Besides Shandong Nanshan, Tsingshan, the world’s largest producer of stainless steel and nickel, has also opened aluminium facilities in Indonesia."}],[{"start":164.29999999999998,"text":"“A lot of Chinese investors started to look to Indonesia as the source for new capacity growth because China doesn’t allow them to invest and margins are great at the moment,” said Wenyu Yao, a senior metals strategist on Citi Research’s commodities team."}],[{"start":179.7,"text":"The tightening market amid the Iran war has led to speculation about whether Beijing could relax the cap."}],[{"start":187.25,"text":"Indonesia’s export ban has already led to a sharp increase in alumina production by Chinese-owned facilities such as the one on Bintan. The country produced 5.9mn tonnes of alumina last year, up from 3.3mn in 2022, according to data from market research group CRU."}],[{"start":205.55,"text":"Indonesian ports have seen a marked increase in deliveries of alumina over the past few years, from countries including Australia and from domestic sources, according to data provider Kpler. The country remains a net exporter of the material but that could change as new aluminium smelters open."}],[{"start":null,"text":""}],[{"start":221.60000000000002,"text":"Some analysts are sanguine about the risks of the build-out but agree Indonesia is poised to become more dominant in the market. "}],[{"start":229.10000000000002,"text":"Price reporting agency Fastmarkets had already forecast a small global deficit in the primary aluminium market this year, before the Iran war. Now, concerns about availability have prompted speculation that buyers may turn to Russian material that many had avoided since the full-scale invasion of Ukraine."}],[{"start":247.70000000000002,"text":"Greg Shearer, head of base and precious metals at JPMorgan, forecast the largest primary aluminium deficit this year since 2000, thanks to the hit to Middle Eastern production, and pointed out that global stocks were “thin”."}],[{"start":261.20000000000005,"text":"Higher prices this year could “accelerate Indonesia’s build-out”, he said, though new supply would be felt largely from 2027 onward as facilities came online. "}],[{"start":272.25000000000006,"text":"A jump in Indonesian production could offset some of what has been lost in the Gulf region, where some damaged facilities will take time to repair, as well as stalled new capacity and closures elsewhere."}],[{"start":285.50000000000006,"text":"Miner South32 closed its Mozal aluminium smelter in Mozambique last month “due to the inability to secure sufficient and affordable electricity supply”, while Rio Tinto said at the end of last year that it was considering shutting its Tomago smelter in Australia because of high power costs. "}],[{"start":304.15000000000003,"text":"Rising energy costs since the outbreak of the war put other aluminium smelting capacity at risk, said Guy Wolf from broker Marex. The “tightness” in the market was “somewhat artificial”, he added, since the China production cap and buyers self-sanctioning Russian material were both “choices”. "}],[{"start":322.1,"text":"Greg Wittbecker, president of Wittsend Commodity Advisors, said: “The fear is that all of a sudden this metal production in Indonesia is going to overwhelm the market and kill the rally, but we do need the metal.” "}],[{"start":334.6,"text":"Even before the war, the growing market would “easily absorb” the new Indonesian metal coming this decade, said Wittbecker. "}],[{"start":341.85,"text":"Data visualisation by Haohsiang Ko in Hong Kong"}],[{"start":352.75000000000006,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1777359202_5063.mp3"}