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MELBOURNE, Aug 28 (Reuters) - Australian diversified miner South32 S32.AX is closely watching alumina developments in Indonesia to see whether they will drag down prices in the global market the same way its nickel industry has, CEO Graham Kerr said on Thursday.

Indonesia, seeking to expand domestic processing, has ramped up its production of low cost nickel in recent years to become the world's dominant supplier, sending producers in other jurisdictions like New Caledonia and Australia out of business.

Indonesia's government has since looked to replicate that success in other markets. The country last year turned a net exporter of alumina, which is a semi-processed product, formed from mineral bauxite, and ultimately turned into end product aluminium.

"The challenge we have for ourselves is whether they can do in alumina what they have done in nickel," Kerr told an analyst briefing.

"We think there'll be some capital compression (but) you don't have the same capability to build large industrial parks," he said. Unlike in the nickel industry, alumina production also creates a waste product known as "red mud", which has to be carefully managed.

"So I think there are some complexities which will limit scale in Indonesia as well," he added.

South32 reported a 75% surge in full-year profit on Thursday, helped by strong performance at its alumina division and higher commodity prices.

(Reporting by Melanie Burton; Editing by Kim Coghill and Sonali Paul)

((melanie.burton@thomsonreuters.com Twitter: @MelanieMetals; +613 9286 1421; Reuters Messaging: melanie.burton.thomsonreuters.com@reuters.net))