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MARKET INTELLIGENCE REPORT ON

OLEO-CHEMICAL INDUSTRY IN INDONESIA STILL ATTRACTIVE
November  2009

Backgrounds 

Oleo-chemical industry in Indonesia has the support of abundant availability of basic material. Indonesia is the world’s largest producer of the basic material, CPO. 

However, Indonesia is still lagging far behind Malaysia in the development of oleo-chemical industry. Malaysia’s production capacity for oleo-chemicals is twice as large as that of Indonesia.

Indonesia has only a 12% share of the world’s oleo-chemical market of six million tons per year as against Malaysia’s 18.6%. 

Malaysia’s palm oil industry has succeeded in processing CPO to turn out more than 120 types of downstream products, which are much higher in value. Indonesia has so far could produce only more than 10 type. The Malaysian Palm Oil Board (MPOB), which is the governing body determining that country’s policy in oil palm industry is the agency behind that success. 

Oleo-chemical industry is a strategic industry giving added value of more than 40% to the value of CPO and PKO. 

Indonesia, however, has recorded significant increase in its oleo-chemical production capacity in the past several years. There are a number of new players in the industry and old producers have expanded their capacity.  The new investment indicates that the industry is still attractive and it is expected to continue to expand in the coming years with world’s demand for oleo-chemicals growing by around 5% a year. 

The government has encouraged development of the industry with its policy guaranteeing domestic supply of CPO. Most CPO producers choose to export their product causing shortage in domestic supply to feed domestic industries including oleo-chemical industry producing fatty acid, fatty alcohol, and glycerin.

Description of product

Oleo-chemical industry is an intermediate industry processing CPO and PKO to produce intermediate products to feed downstream industry both in food and non food sectors. 

Among the intermediate products are base oleo-chemicals (fatty acid, fatty alcohol, fatty amines, methyl ester and glycerol). The products are used as feedstock for pharmaceuticals, toiletries and cosmetics. 
Tree of base oleo-chemical industry 

Most or 48% of fatty alcohol consumption in the country is for detergent and cleaning materials and 11% for antioxidant

Glycerin is used mainly as feedstock in the production of soap, cosmetics and pharmaceuticals, together accounting for 37% of glycerin consumption in the country. Other groups of products using glycerin as a basic material include alkyd resin and food products respectively accounting for 12 and 12 percent of the total consumption.

Oleo-chemical production capacity grows fast 

The country’s focus in palm oil industry is still on CPO production.  CPO is major export earner for Indonesia and has not made much headway in developing industry to process CPO into higher value products.  Malaysia has been far ahead of Indonesia in developing its downstream palm oil industry producing oleo-chemicals. 

Oleo-chemical industry has expanded in various other countries such as Malaysia, the Philippines,  China, and  India The industry has grow fast  in those countries  to exceed the world’s market requirement, that Indonesian industrialists think that capacity expansion would not be feasible.  

The producers of base oleo-chemicals are found mostly in Asia. The production of base oleo-chemicals in Asia grows by around 7.1 % per year; in America the growth rate is 2.4 %, and in Europe it is 1.3 %.

In 2005, the world’s production capacity for oleo-chemicals totaled 11,100,000 metric tons per year as against requirement of only 7,200,000 metric tons per year.

Building an oleo-chemical factory will need large investment. Around US$75 million will be needed to build an oleo-chemical factory with a production capacity of 270,000 metric tons per year. 

Base oleo-chemical industry has expanded with the widening applications of oleo-chemical products. Capacity expansion, however, has been faster than demand for basic   oleo-chemicals. 

The world’s demand for oleo-chemicals has continued to scale up from year to year. Demand grows by an estimated 5% a year that has continued to encourage   investment in   the industry   See list of contents



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INDUSTRY : OLEO-CHEMICAL INDUSTRY IN INDONESIA STILL ATTRACTIVE
  • Backgrounds
  • Description of product
  • Oleo-chemical production capacity grows fast
  • Capacity expansion has also been recorded in Indonesia in the past several; years
  • Basic materials
  • Production
  • Capacity utilization of oleo-chemical industry declining
  • Exports shrinking
  • Imports down
  • Oleo-chemical consumption
  • Investment sluggish
  • Conclusion
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