SMM

As Indonesia's bauxite sector heads into 2026, the market finds itself at a pivotal moment shaped by regulatory discipline, downstream progress, and persistent structural dynamics. With no official public disclosure yet on Indonesia's 2026 bauxite production quotas under the Rencana Kerja dan Anggaran Biaya (RKAB) system, market speculation is rife. Drawing from insider insights and recent industry trends, this analysis explores three potential scenarios for the RKAB quota: 18 million tons, 22 million tons, and 25 million tons. These hypotheticals are set against projected demand of 23-25 million tons for 2026, driven by domestic alumina refinery expansions and global aluminum needs. Current prices linger at USD 28-32 per ton, but shortages or surpluses could significantly alter this trajectory.

Spot prices for Indonesian bauxite (primarily from Ketapang and Sanggau districts, West Kalimantan) currently range between USD 28–32 per ton, remaining well below the government’s Harga Patokan Mineral (HPM) reference of USD 42 per ton. The persistent discount reflects structural oversupply relative to actual refinery offtake, compounded by logistical bottlenecks and seasonal weather disruptions.

The RKAB framework, now limited to one-year approvals starting in 2026, aims to curb oversupply and enhance regulatory control, similar to adjustments in nickel and coal sectors. Delays in quota approvals have already prompted temporary measures, allowing miners to produce 25% of proposed outputs in Q1 while applications are processed.

Below, we break down each scenario's implications for supply-demand balance, pricing, and investment opportunities, focusing on data-driven insights for business intelligence in the aluminum value chain.

Scenario 1: Conservative Quota at 18 Million Tons – Shortage Risks and Price Upside

In this baseline scenario, the government opts for tight controls to prioritize sustainability and combat illegal mining, setting the RKAB at 18 million tons aligning with recent production forecasts around 15 million tons but below demand projections. This would create a deficit of 2-7 million tons against 23-25 million tons of demand, pressuring domestic refineries and exporters.

Key impacts:

• Supply-Demand Mismatch: Domestic alumina producers, already facing funding delays in seven major projects, could see input costs rise, potentially delaying expansions.
• Price Dynamics: Expect a rally from current USD 28-32/ton FOB to USD 32-36/ton by mid-2026, narrowing the gap to the HPM benchmark of USD 42/ton. Higher prices would benefit miners like PT Antam but strain downstream players.
• Indonesian stakeholders: Focus on efficiency upgrades and compliance with SIMBARA to secure quotas.

Scenario 2: Balanced Quota at 22 Million Tons – Equilibrium with Moderate Growth

A mid-range quota of 22 million tons could reflect a compromise, accommodating on-time ramp up of refineries while maintaining oversight. This aligns with potential demand midpoint, fostering stability but leaving room for minor shortfalls if expansions accelerate.

Key impacts:

• Supply-Demand Mismatch: A near-balance at the lower end of demand (23M tons) but a 3M ton gap at the upper (25M tons).
• Price Dynamics: Mild upward pressure, with averages stabilizing at USD 30-34/ton FOB. Less volatility than Scenario 1, but still above current levels, encouraging integrated investment in value-added processing.
• Investment Angle: Ideal for integrated players; Could attract Chinese capital for stalled projects. Monitor energy subsidies, as gas/electricity costs in aluminum production remain key variables.

Scenario 3: Expansive Quota at 25 Million Tons – Surplus Potential and Price Pressure

If quotas reach 25 million tons, perhaps to boost downstream industries amid global aluminum demand for EVs, constructions, and other related industry. This could match or exceed projections, risking oversupply if refinery delays persist.

Key impacts:

• Supply-Demand Mismatch: Equilibrium or surplus of up to 2M tons if demand stays at 23M, but tight if it hits 25M. This encourages export growth but could revive illegal operations if enforcement lags.
• Price Dynamics: Downward pressure, holding prices at USD 28-30/ton or lower, widening the discount to benchmarks. Beneficial for buyers but challenging for miners' profitability.
• Investment Angle: Focus on cost reductions in production (e.g., energy efficiency). Higher quotas could accelerate Indonesia's alumina output to 11.6 million tons around 2028.

Most Probable Outcome: 18–22 Million Tons Range (SMM Forecast)

According to the latest forecast from Shanghai Metals Market (SMM) currently assign the highest probability to an RKAB quota falling in the 18–22 million ton range, with the balance tilting slightly toward the lower end (closer to 18–20 million tons). This view is supported by several reinforcing factors: the government’s consistent post 2023 emphasis on supply discipline and price normalisation, the ongoing priority given to SIMBARA enforcement and environmental compliance, the still-limited progress on several major delayed refinery projects, and the political desire to avoid repeating the severe oversupply and price collapse experienced in earlier commodity cycles. A quota significantly above 22 million tons would require a marked policy pivot toward aggressive downstream acceleration, a shift that appears less probable in the current regulatory and political environment.

Strategic Summary & Key Recommendations

Indonesia’s bauxite market in 2026 stands at a decisive inflection point. Tighter quotas favour price normalisation, industry consolidation, and resource stewardship, while a more expansive ceiling would prioritise rapid downstream capacity build-out at the expense of near-term pricing discipline.

Key variables to monitor intensively

• Official RKAB quota announcement (expected in Q1 2026).
• Concrete progress updates on major delayed refinery projects (SGAR Phase expansions, Bintan Alumina, Borneo Alumina, and others).
• Enforcement effectiveness of the SIMBARA digital tracking system and associated crackdowns on non-compliant/illegal production.
• Any policy signals regarding adjustments to energy subsidies (particularly natural gas and electricity tariffs for alumina producers).

Recommended strategic posture for stakeholders

• Mining companies (especially integrated or refinery-linked producers): Prepare for a tight-to-balanced supply environment. Prioritise operational efficiency upgrades, full SIMBARA compliance, environmental rehabilitation acceleration, and digital traceability enhancements to maximise quota allocation probability.
• Alumina producers & downstream investors: Build flexibility into feedstock procurement strategies; Track energy cost developments closely as subsidised gas and power tariffs remain a decisive competitive advantage, any change in subsidy policy would materially alter project economics.

Conclusion

While the Indonesian bauxite market currently appears tight and faces a perceived shortage in the near term, price will most-likely still remain below the HPM price and there should be no major issues in the first half of 2026. Demand during 1H is expected to be lower than the full-year projection (typically 45–50% of annual consumption due to seasonality and ramp-up patterns), leaving sufficient headroom even under the most conservative RKAB quota scenario (18 million tons). Moreover, the RKAB quota will be reviewed at the end of the first half of 2026, which could result in an increase for the 2H if downstream progress justifies additional allocation. This built-in review mechanism should help ensure supply remains aligned with actual demand as the year progresses.