Inalum warns of aluminium oversupply, urges demand-based smelter growth

By Calvin Purba

State-owned aluminium producer PT Indonesia Asahan Aluminium (Inalum) has raised concerns over Indonesia’s rapidly expanding aluminium smelter pipeline, warning of potential oversupply, price pressure, and risks to bauxite reserve sustainability if growth remains unchecked.

Speaking during a hearing with Commission VI of the House of Representatives (DPR) on Tuesday (March 31), CEO Melati Sarnita said Indonesia's current aluminium output stands at around 1.1 million tonnes, with installed capacity of 1.125 million tonnes.

However, installed aluminium smelter capacity is projected to reach 1.975 million tonnes by 2026, nearly four times higher than Indonesia’s domestic demand for primary aluminium, which is estimated at only around 520,000 tonnes per year.

Current smelter operations require approximately 2.2 million tonnes of alumina, which could increase to 4 million tonnes in line with the expansion of aluminium smelters.

Melati further noted that there are currently 15 companies planning to operate aluminium smelters in Indonesia, which could significantly boost national production capacity, although some projects remain at the planning stage.

 “If all 15 companies proceed with smelter development, Indonesia’s potential aluminium production capacity could reach 14.9 million tonnes per year,” she said, highlighting concerns over uncontrolled expansion.

With the rapid increase in aluminium smelters, alumina demand is also expected to surge. total alumina demand could reach 29 million tonnes annually, potentially driving structural changes in the global alumina market. Melati Sarnita noted that there are currently more than 13 companies planning to operate alumina refineries, which are expected to come online in the coming years.

However, from the demand side, the sharp rise in aluminium production is unlikely to be matched by domestic consumption. Indonesia’s aluminium production is projected to reach 4.9 million tonnes by 2035 (based on projects in the pipeline), while domestic demand is expected to increase only modestly to around 707,000 tonnes per year, indicating that most smelter projects are export-oriented.

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Melati noted that the global alumina market is expected to enter an oversupply phase, driven by ongoing refinery capacity expansions. This has already put pressure on prices, with alumina currently trading at around $300 per tonne, its lowest level since 2021.

Inalum has also begun to observe early signs of weakening demand, including in its SGAR Phase I project.

She warned that while moderate expansion could help balance global supply deficits, a more aggressive increase—particularly toward the 14.9 million tonnes level—could trigger a global glut.

 “Such conditions would significantly exceed demand, putting downward pressure on prices, reducing margins, and ultimately impacting value creation,” she said.

Melati also highlighted risks to Indonesia’s bauxite reserves, estimating that proven reserves could be depleted within 10 years, with total reserves lasting up to 28 years under current expansion scenarios.

Drawing lessons from Indonesia’s nickel downstreaming strategy, she pointed to risks of overcapacity and market volatility, noting that rapid nickel output growth has resulted in oversupply and nearly a 50% decline in prices since 2022.

Environmental risks were also flagged, including high carbon emissions due to coal dependency, deforestation, and tailings management challenges—issues that could also emerge in the aluminium sector.

Melati emphasized the need for a more measured, demand-driven approach to smelter development, including consideration of a potential moratorium, to ensure long-term resource security.

 “As a country aiming to become a developed nation by 2050, it would be unfortunate if Indonesia no longer has sufficient bauxite reserves when domestic aluminium demand rises significantly,” she said.

Editing by Reiner Simanjuntak