[SMM Analysis] Structural Optimization of Indonesia's Nickel and Aluminum Industries Amid Energy Challenges

As a major global nickel producer and a key location for future aluminum capacity releases, Indonesia is leveraging its abundant resources to advance its downstream industrial value chain strategy, aiming to transform from a raw material exporter into a significant global hub for downstream processing and manufacturing. However, this grand vision faces an increasingly urgent practical constraint: structural tightness in domestic power supply.

With the Indonesian government actively introducing and supporting the energy-intensive aluminum industry, limited power resources are beginning to create competition between two key sectors—nickel and aluminum. Against the backdrop of electricity becoming a scarce resource, market mechanisms may spontaneously steer capacity toward sectors with higher energy efficiency per unit output value, potentially triggering a profound reallocation of resources within Indonesia's metal industry.

This industrial shift, driven by the "energy bottleneck," not only impacts the pace of Indonesia's own industrialization process but could also influence the landscape of nickel and aluminum supply chains.

According to SMM data, there are significant differences in power economic efficiency among different products in the nickel-aluminum industry chain. Nickel pig iron (NPI) exhibits the lowest power utilization efficiency. If Indonesia plans to commission new aluminum capacity, replacing some NPI capacity would offer clear optimal advantages in terms of economic efficiency.

Based on November economic data for core products, profitability and power economic output per kilowatt-hour show significant divergence across segments of the nickel-aluminum industry chain. SMM calculations, with all related costs based on self-generated power, indicate that within the nickel product system, MHP performs most prominently, with a product profit margin of 29% and a profit margin per kilowatt-hour as high as 1,186%, demonstrating extremely strong power economic efficiency. Refined nickel has a product profit margin of 14% and a profit margin per kilowatt-hour of 373%, also showing strong competitiveness. High-grade nickel matte has a profit margin of 8% and a profit margin per kilowatt-hour of 82%. In contrast, nickel pig iron (NPI) ranks at the bottom, with an overall profit margin of only 4% and a profit margin per kilowatt-hour of just 40%, making its production economic disadvantage particularly evident amid tight power resources.

In contrast to nickel products, Indonesia's aluminum industry demonstrates higher overall profitability. SMM data show that aluminum product profit margin reaches 46%, far exceeding most nickel-based products. Although its profit margin per kilowatt-hour (180%) is lower than that of MHP and refined nickel, it is significantly higher than that of NPI and high-grade nickel matte. Notably, the Indonesian government's policy direction already encourages industrial upgrading toward higher value-added products. Indonesia's inherent expectations for developing the aluminum industry are precisely due to its substantial product profit margin. However, aluminum production is characterized by extremely high power consumption, which has led to the construction and release of related capacity consistently falling short of expectations. Given limited core resources such as electricity, if Indonesia aims to concentrate resources on investing in products with higher profit margins, some capacity of economically less efficient categories within the nickel industry chain may face substitution, assuming power supply remains constrained. Against this backdrop, the optimal allocation of power resources has become a key lever for industrial adjustment. If Indonesia plans to deploy new aluminum capacity, shutting down some NPI capacity becomes a more economically viable option. On one hand, the profit margin per kilowatt-hour for NPI is only 40%, significantly lower than aluminum's 180%. Redirecting power resources originally used for NPI production to aluminum can substantially enhance the benefits per unit of power resource. On the other hand, aluminum's high product profit margin of 46%, compared to NPI's 4%, can effectively improve economic efficiency.

In summary, advancing the downstreamization of the industrial value chain and transitioning from a raw material exporter to a metal processing and manufacturing hub are core industrial strategies formulated by Indonesia based on its abundant resources. The aluminum industry is a crucial component of this strategy. However, the reality of structural tightness in power supply has become a key bottleneck hindering the implementation of this strategy, fostering competition for power resources between the two highly energy-intensive industries of nickel and aluminum. Although the high power consumption characteristics of aluminum have led to slower-than-expected capacity release, against the backdrop of scarce power resources, transferring part of the power resources allocated to NPI capacity to the aluminum sector—achieving an orderly shutdown of the former and a rational deployment of new capacity for the latter—can not only significantly increase the revenue per unit of power resource, aligning with Indonesia’s policy direction of upgrading to higher value-added industries, but also promote the optimization of its metal industrial structure.