Smelting the Future
    Category: Riches from Resources By : Ulisari Eslita Read : 1528 Date : Tuesday, May 05, 2015 - 10:03:37

    Ahmad Zamroni / Forbes Indonesia

    PT Indonesia Asahan Aluminium (Persero), better known as Inalum, may provide lessons for investors mulling the government’s new policy to encourage smelters. Although its roots go back to the 1970s, Southeast Asia’s only aluminum smelter has only been in government hands since 2013. The new state owners have set their priorities: “Our current goal is production optimization so we can produce more aluminum and electricity,” says Winardi Sunoto, Inalum’s president director.

    Winardi is moving fast to expand and improve Inalum. Since the takeover, Inalum has reported a 180% growth in profit to $117 million during the April-December period in 2014, up from $34 million in the same period last year. Production is also on the rise. Right now, Inalum produces 250,000 tonnes of aluminum. By 2018, Winardi aims to raise that figure to 300,000. “By 2019, our production capacity should reach 500,000 tonnes of aluminum per annum,” he says, in other words, a doubling of output.

    There is some logic for why Indonesia should have an aluminum smelter. It is a major producer of bauxite, the raw material used to make aluminum, and there is huge demand in Indonesia for aluminum. Current aluminum demand is about 650,000 tonnes per year with 10% of growth every year. Inalum therefore has no problem selling its output. “As of today, 85% of our production is dedicated to the local market in Indonesia to meet surging national consumption,” says Winardi. Inalum supplies the national market from a base in Sumatra.

    Indonesia was among the world’s largest producers of bauxite—until the export ban took effect in January 2014, and production dropped to an estimated 500,000 tonnes from 55.7 million tonnes in 2013, according to U.S. Geological Survey data. Australia, China and Brazil remain large producers, according to the same data.  

    Winardi says Inalum will drive the business upstream by developing bauxite processing and calcined petroleum coke (CPC) plants, which is another raw material for aluminum. “The development of these two plants are urgent, so we don’t have to import the raw material any longer,” he says.

    Globally, Indonesia’s aluminum output is a drop in the bucket, only 0.6% of total aluminum production worldwide. China, in comparison, produces 18 million tonnes of aluminum. In a bid to double its production by 2019, the firm will invest $2.4 billion to build a power plant, a new smelter, a new port, and a CPC plant. To finance the project, Inalum will use a combination of internal cash and borrowings. The company may also do an IPO, subject to government approval.

    Inalum is also developing a joint venture with state-owned mining company PT Aneka Tambang for a refinery project in Mempawah, West Kalimantan. The refinery will process bauxite ore into alumina and cost about $1.5 billion. The refinery is expected to produce 1.2 million tonnes of alumina in 2017.