Indonesia bets on coal-fired aluminum boom as Iran war reshapes supply

Indonesia is accelerating its aluminum industry expansion, betting on its vast coal reserves to power new smelters as the Iran war disrupts Middle East supply. The conflict has driven up global aluminum prices and exposed the region's vulnerability, prompting buyers to seek alternative sources.

The Middle East typically accounts for about 9% of global aluminum output, but production is expected to fall 44% this year, according to commodities data firm Fastmarkets. Energy shortages have forced major producers like Emirates Global Aluminium and Qatar Aluminium to cut output, while strikes have damaged facilities in Bahrain. Prices, which hovered around $3,150–$3,250 per metric ton before the war, spiked to $3,780 in June and now trade near $3,400.

Indonesia aims to quadruple its alumina output to 32.5 million metric tons and increase aluminum production from roughly 1 million metric tons in 2025 to 14.5 million metric tons by 2030, according to the Centre for Research on Energy and Clean Air (CREA). The nonprofit is tracking 32 planned off-grid "captive coal" plants built exclusively to power smelters.

This coal reliance contradicts Indonesia's climate commitments and risks worsening pollution in Southeast Asia, according to environmental groups. The aluminum industry already accounts for about 2% of global greenhouse gas emissions, roughly 1.1 billion tons of CO2 equivalent annually.

China, which produces 60% of the world's aluminum but has capped domestic output, has invested $5.5–$6 billion in Indonesian projects, with CREA forecasting this could reach $30 billion by 2030. Chinese companies have backed about three-quarters of planned projects.

Indonesia classifies aluminum and nickel as "transition minerals" for clean technologies, a loophole critics say allows coal-powered production to be marketed as green. "You say it's a green product, but it is powered by coal... That's definitely greenwashing," said Binbin Mariana of advocacy group Market Forces.

Experts note that cleaner alternatives like hydropower exist but would take longer and cost more. "The speed factor is really what is causing the havoc," said Putra Adhiguna of the Energy Shift Institute. If all planned projects operate by 2030, CREA estimates Indonesia's bauxite reserves could be depleted in under 12 years.