Australia needs to watch Indonesia aluminium push warns Alcoa boss

Australia’s nickel industry has been devastated by the success of Indonesia’s downstream processing success. The same could happen to alumina and aluminium.

A worker at Alcoa’s Pinjarra Refinery, in WA.

The federal government needs to keep a close eye on Indonesia’s push into the aluminium industry, Alcoa boss Bill Oplinger has warned, as the country looks to replicate its nickel success in a new commodity.

Alcoa closed out its acquisition of Alumina Ltd this week, bringing together the ownership of the Alcoa World Alumina and Chemicals under its own roof for the first time, and bringing a listing of Alcoa stock on the Australian Securities Exchange.

The move, Mr Oplinger said, would help Alcoa reinvest in its West Australian alumina operations after a tough few years for the business.

But the Alcoa boss said Australia still needed to get its policy settings right to guarantee Australia’s “world class” alumina remained at the bottom of the global cost curve, including putting the entire aluminium value chain – from bauxite to alumina and aluminium – on the country’s critical minerals list.

While moves in China to curtail excess production have generally been seen as a boon for producers in the rest of the world, Mr Oplinger, speaking to The Australian on Friday, highlighted the Australian industry’s “vulnerability” to global developments – including Indonesia.

Indonesia’s decision to restrict the export of low-grade nickel ore and instead require investment in local nickel pig iron kilns, smelters, and other downstream processing plants led to massive Chinese investment in the country, which has played a major role in the devastation of the Australian nickel industry over the past two years. The country is now seeking to replicate the success of that push in aluminium.

In 2021 the Indonesian government announced a plan to ban bauxite exports from mid-2023 in a bid to encourage investment in new alumina refineries and aluminium smelters. The country was once the sixth-biggest bauxite exporter in the world.

Progress in that goal has been slow, with Indonesia’s Energy and Mineral Resources Department saying last month that only one of eight planned refineries had made significant progress.

Alcoa boss Bill Oplinger.

Alcoa Refinery in Pinjarra region of WA.

But despite talk this month that the Indonesian government is considering relaxing its bauxite export ban, Mr Oplinger told The Australian that the federal government should be keeping a close eye on developments in Australia’s northern neighbour, and accelerate moves to include the aluminium supply chain on its critical minerals list.

“It would help the government understand that there’s early signs of vulnerability in the marketplace. And so they would be able to understand if there was a vulnerability, similar to some of the things that we’ve seen in Indonesia,” he said. “It would certainly make it easier for us to make investment decisions.”

While progress may have been relatively slow since the introduction of bauxite export bans, Mr Oplinger said heavy investment in Indonesia could easily replace curtailed production in China.

“When you think about Indonesia, as we look forward into the next decade, Indonesia could account for nearly half of the new aluminium production in the world. And then, in addition to that, they would be adding ­alumina capacity to the tune of about seven million metric tons over the next decade or so,” he said.

As it did in nickel, Indonesia is looking to rely on former Chinese bauxite importers to supply the technology and expertise needed to build its own refining and smelting industry.

“We don’t see that they can get the similar low level of capital costs that you see in China for both refining and smelting capacity. But we do see growth in those two areas,” Mr Oplinger said.

“Much of the alumina growth will be a replacement for capacity that gets curtailed in China.”

Australian nickel producers have called for the establishment of a separate market for class one “green” nickel, in a move to try to limit Indonesian penetration into the lithium battery market, given the country’s nickel industry relies on cheap coal-fired power.

Mr Oplinger said the green premiums were already being seen in the global aluminium market, but they were only $US20 to $US30 a tonne – not enough to drive carbon reduction initiatives for major players in the industry.  “The reason that hasn’t gotten larger is that there’s no common definition yet of exactly what ‘green’ means for aluminium,” he said.

“Some people will say it’s seven tonnes (of carbon emissions) per tonne of aluminium, some will say that it’s four tonnes per tonne. Our belief is that that should be set at around four tonnes per tonne from mine to metal and that would be inclusive of all of the supply chain.”

Alcoa still has its challenges in permitting new mines in WA, where the company has drawn criticism over concerns around rehabilitation and its environmental performance under opaque regulations covering state agreements.

Mr Oplinger said Alcoa was working through its remaining permitting issues around land clearing with the WA state government, but said good progress was being made.

“When we move the mine in Huntley and get better ore quality they will be back to some of the lowest-cost assets in the world,” he said.