The Jakarta Post has carried a story that Inalum, Indonesia’s only aluminium smelter, is to expand and double its capacity.

Inalum will spend US$1 billion in the process, with the money coming from bond issuance and other debt raising. The money will go towards an incremental upgrade of their existing capacity (taking them from 250kt to 300kt) plus a new line which will produce another 200kt. The plan is to include an alumina refinery and a carbon plant as part of the expansion.

This announcement marks probably the first important project in the primary aluminium world since Ma’aden. We have been telling our clients for some time now, that the world needs new primary capacity soon, if the industry is to be able to sustain continued demand growth. It’s too easy to eye the mountain of legacy metal in and out of LME warehouses and think that the world will be okay for years to come. Apart from Ma’aden, the only other future project around the globe is Kitimat, though one day we might see Alba Line 6. And there is the expansion of Salco in Iran, but that is not a major play.

Unfortunately, it’s not a major contribution. The 250,000t of new metal represents about 4 days supply for the World excluding China.

We at AZ China have been somewhat skeptical about talk of new smelter projects in Indonesia, as the country would need to develop additional power supply and infrastructure to support a new project, not to mention cleaning up its image as a country where corruption is rife. But this project makes a lot of sense - it’s an expansion of existing capacity, being done by an Indonesian company with Government links. The Indonesian government bought the Japanese portion of the equity a couple of years ago.

Interestingly in terms of the long term supply outlook for the world ex China, the announcement says that the project will start construction this year following completion of the feasibility study, with metal becoming available in 2019. That supports our previous mantra that (apart from the two other projects named earlier and now this project), we won’t see any new metal enter the market this decade.