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MARKET INTELLIGENCE REPORT ON

DEVELOPMENTS OF POLYETHYLENE (PE) RESIN INDUSTRY IN INDONESIA

May 2007



Current Isuues

Scarcity in the supply of  feedstock namely  naphtha has remained the main problem slowing development of polyethylene (PE) industry in  Indonesia in the past 10 years.  Naphtha is used as the feedstock for ethylene, which is in turn used as the main basic material for PE resin. This problem has been pointed out in a report of Joint Forum on Investment Competitiveness/SME WG Petrochemical Indonesia Japan in March 2007.  Indonesia is lagging behind Thailand, Malaysia,  and Singapore in the development of upstream petrochemical industry. Mitsubishi Chemical Japan in 2006 put Indonesia the 34th among countries having petrochemical industry in the world.

PE market in ASEAN is still highly potential  especially after the implementation of AFTA. Petrochemical demands in this region total 4 million tons  a year as against exports of 2.5 million tons. Production of petrochemical products in ASEAN grows by 6%-8% annually. Despite growing market demand, the growing  presence of new players from Middle East in this region may pose a threat to  regional industry.

Olefin and aromatic industries as the bases of petrochemical industry in the country have grown sluggishly. There are few local investors interested in the industry  or having the capacity to develop the industry. The industry needs large investment of  US$ 1.5 billion - US$ 3 billion.
In addition, scarcity in the supply of feedstock namely ethylene is also a problem. Imports will be needed  at high price to follow  the soaring prices of crude oil  to as high as US$ 70 a barrel.  As a result PE industry in the country operated only at 60% of its capacity in 2006. According to the association of plastic and olefin industries (Inaplas), a factory has to operate by at least 80% of its capacity to   hit the break even point.

Noteworthy in the recent events in  the country's petrochemical industry was the takeover of PT. PENI (PE producer) by  Titan Petrochem Sdn Bhd  from  Malaysia in  2006  at a price of  US$ 78 million.  The acquisition made  the  Titan Group as the largest producer of  PE  in Southeast Asia. The Titan Group also plans to acquire PE companies in other countries in this regional such as Vietnam and the Philippines. The Titan Group has the first and largest integrated facilities producing olefin and polyolefin  in Malaysia and it is the second largest producer of polyolefin in Southeast Asia.
Through the take over of  PENI, the Titan Group hopes to dominate the Indonesian market of plastic basic material. After the acquisition, Titan  plans to build an ethylene factory to feed the polyethylene plant  of PENI.

Titan has saved PENI, which previously  continued to be in the red  and in the doldrums with capacity utilization of below 30%. The presence of the Titan Group in  Indonesia will change  the condition of PE industry in the country, which still depends on imports  for PE. In 2006, imports of PE totaled 244,000 tons.

Meanwhile, there were  reports of plan to acquire  Chandra Asri Petrochemical Centre (CAPC) by Temasek Holdings, an investment holding from Singapore. Temasek already has stakes in telecommunications sector namely in PT Telkomsel and PT Indosat, the country's largest and second largest telecommunications company and  in  banking sector  namely in Bank Danamon Tbk  and  Bank Internasional Indonesia (BII) Tbk.

Also noteworthy was the recent acquisition of PT. Styrindo Mono Indonesia, a producer of ethylene benzene by CAPC. The acquisition made CAPC more integrated. CAPC also plans to invest  US$ 30 million  to expand its ethylene production capacity  to 590,000 tons from  520,000 tons  annually at present.
Expansion by two PE producers - CAPC  and  Titan -  will cope with  the  scarcity in the supply of  PE in the country  and reduce dependence on import for that material.

Indonesia has so far needed to import considerable quantity of PE. In 2006, the country needed  682,000 tons of PE as against local production of only  470,000 tons a year. 

Almost all users of petrochemicals in the country depend on imports for more than 50% of   their basic material requirement. In 2006, the country needed 1.3 million tons of ethylene  as against domestic production of only 520,000 tons.

PE imports averaged  244,000 tons - 267,000 tons annually in the past two years to meet growing demand in the country  for downstream industries such as plastic bag, electronic and automotive industries.

The expansion indicated that PE producers see good prospects of the industry in the country. The expansion by CAPC and PT. Titan Petrokimia Nusantara Interindo (TPNI) will encourage investment in upstream petrochemical industry. 

As investment in upstream sector will require large fund, the government is expected to offer incentives and remove restrictive regulations to attract investors. 

Producers and Capacity

In  Indonesia, there are two PE producers -  PT. Chandra Asri Petrochemical Centre (CAPC)  and  PT. Titan Petrokimia Nusantara Interindo (TPNI). CAPC is a producer of petrochemical materials operating  an integrated factory  with upstream products including  ethylene and propylene and downstream products including plastic basic materials namely high density polyethylene (HDPE). TPNI produces HDPE and  low density polyethylene (LDPE).

CAPC's annual production capacity for PE is 300,000 tons (200,000 tons for LLDPE,  100,000 tons of HDPE), 520.000 tons of ethylene and 240.000 tons of propylene a year.  TPNI's annual production for PE is   450,000 tons  -- 225,000 tons each for LLDPE and HDPE.


PT. Chandra Asri Petrochemical Centre

PT. Candra Asri Petrochemical Centre (CAPC)  was established in 1989  as a joint venture between Barito Pacific, which is owned by tycoon Prajogo Pangestu (75%) and Marubeni of Japan (25%). CAPC started commercial operation in  1995  with an investment of  US$ 1.7 billion.

After experiencing changes in the composition of  shareholders, in  2006, CAPC  was controlled by  Temasek Holding  from  Singapore.

PT. Titan Petrokimia Nusantara Interindo

The company was previously known with the name of PT. Petrokima Nusantara Interindo (PENI) established in 1990 by Beyond Petroleum formerly  British Petroleum (BP) from Britain, Sumitomo Corp  and  Mitsui Co Ltd  from Japan  and  PT. Arseto Petrokimia.

In  2003 PT. Indika  from the  Indika Group of  the  Sudwikatmono family acquired  100% of PENI. In 2006,  Indika resold it  to  Titan Petrochem Sdn Bhd a subsidiary of  Titan Chemicals Group  from  Malaysia


Production of PE up
The country's PE production has continued to increase in the past five years - from 430,000 tons  in 2002 to   470,000 tons in  2006 or an annual growth of 3%. The increase in production was booted by growing demand mainly from plastic and packaging industries.  Plastic packaging is used much by food and beverage industry.  Inaplas said the size of plastic market in Indonesia was around 2.6 million tons in 2006 and the market requirement is forecast to rise to 4 million tons in 2015.

Domestic production of PE totaled 470,000 tons in 2006 falling short of requirement of  662,000 tons. Imports, therefore, were needed such as from Singapore, South  Korea  and Middle East.

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ICN - May 2007

FOCUS: GOOD MOMENTUM TO ATTRACT FOREIGN FUNDS TO THE REAL SECTOR

INDUSTRY PROFILE:

DEVELOPMENTS OF POLYETHYLENE (PE) RESIN INDUSTRY
  • Backgrounds
  • Characteristics  and Classification of Products
  • Producers and Capacity
  • Capacity and  production
  • Dependence on imports for  basic material ethylene        
  • Projection of  production capacity  and  production
  • Imports        
  • Exports
  • Consumption
  • Investment sluggish
  • Market share and competition
  • Government Policy
  • PE Price        
  • Prospects and conclusion

DEVELOPMENTS OF POLYPROPYLENE (PP) RESIN INDUSTRY IN INDONESIA
  • Backgrounds
  • Structure of Industry
  • Production capacity
  • Import tariffs
  • Imports of  PP resin growing
  • Exports of PP resin by Indonesia
  • PP resin consumption
  • Delta P amounting to US$ 105 in  2006
  • Marketing and Distribution of PP resin
  • Prospects and conclusion

DEVELOPMENTS OF PVC RESIN INDUSTRY IN INDONESIA
  • Current Issue
  • Description of product
  • Production capacity and producers
  • Imports
  • Malaysia the largest supplier in 2006
  • Exports
  • Consumption
  • Competition
  • Prospects and conclusion        
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