Shandong Nanshan Aluminum puts up $5b for Bintan bauxite smelter

China’s Shandong Nanshan Aluminum had allocated at least $5 billion to build a facility to process bauxite in Bintan, Riau Islands, Industry Minister M.S. Hidayat has announced.

“They already started the project with a purchase of 1,000 hectares of land,” the minister said after a meeting with the company’s president on Wednesday. “They will also build a port there,” he added.

Shandong Nanshan Aluminum president Song Jianbo said construction began earlier this month and would be completed within three years. The Chinese company is partnering with local firm Mitra Karsa Utama on the project, he added.

“The local partner controls 5 percent of the project,” Song said, adding that the investment would be spread over five years.

The smelter will be able to produce 2.1 million metric tons of alumina and 570,000 metric tons of ingots.

Much of this output will be for export, but Song declined to elaborate on how much would be allocated for domestic consumption. “We have to assess our needs first before we do that,” he said.

Indonesia supplied 80 percent of China’s bauxite imports in 2011.

Chinese companies are investing more in Indonesia after regulators passed rules that will bar the export of raw resources.

On Sept. 28, senior Energy and Mineral Resources Ministry official Thamrin Sihite said that the export restrictions, set to take effect in January, would be suspended for firms that committed to building a smelter.

Thamrin equivocated as to how regulators might try to secure financial backing for companies’ promises.

Indonesia currently has just one aluminum smelter. Indonesia Asahan Aluminium’s (Inalum) North Sumatra facility produces 250,000 metric tons of aluminum ingots annually, 60 percent of which is exported to Japan.

According to Thamrin, of the 125 plans for smelters announced by investors, 97 have made very limited progress. Total investment for these smelters should amount to $16.82 billion, Thamrin said.

China has been a prodigious producer of aluminum for the last five years, despite a global supply glut. Experts say China now has the world’s best aluminum production technology and highest-quality smelters. These energy-intensive facilities are overwhelmingly powered by coal in China. It is likely the Riau smelter will be similarly fueled, although this remains unclear.

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