Polyethelene Resins industry 2010

INDONESIAN COMMERCIAL NEWSLETTER

April 2010

DEVELOPMENT OF POLYETHYLENE RESINS INDUSTRY IN INDONESIA

Backgrounds

The global economic crisis in 2008 served a big blow to the plastic basic material industry including polyethylene (PE) industry. Weak demand and large stocks of plastic basic materials including polyethylene (PE) resulted in a decline in production of PE to 425,000 tons in 2008 from 479,000 tons in the previous year. The condition, however, began to improve especially since the third quarter of 2009. The country production of PE began to scale up.

According to association of plastic industries (INAplas) the domestic consumption of plastic basic material early 2009 fell 5% Consumption of plastics averages 20,000 tons per month. Decline in the purchasing power of the people as a result of soaring food prices led to a decrease consumption food products in plastic packages.

The market size of PE will depend much on demand from the user industries mainly plastic and plastic packaging industries. Demand for plastic packages has tended to increase with the growing public consumption. Plastic packages are still the main type of packages used for food and beverage products as they are more efficient and cheaper. According to INAplas, Indonesia is a big market for plastic goods with a market size predicted to reach around 4 million tons in 2015.

Despite the potential, the country's production capacity for PE has not changed significantly in the past five years. The capacity has remained at a round 750,000 tons a year. The country's PE producers have not been able to increase their production capacity because of insufficient supply of basic material in the form of ethylene. The root problem lies in the limited supply of naphtha as feedstock to produce ethylene.

The shortage in the supply of ethylene was worse after a number of large petrochemical factories in Asia were forced to stop operation in the second quarter of 2009 on shrinking demand. Asian market already suffered a deficit in ethylene supply even before the closure of the factories. Among the factories stopping operation in 2009 included Petrochemical Secco of China a producer of polypropylene with a capacity of 120,000 tons per year, Fujian Refining and Petrochemical also in China, a producer of propylene with a capacity of around 1 million tons.

In Japan, Mitsubishi Chemical also grounded to halt resulting in a cut in supply of 150,000 tons of plastic basic materials. In Southeast Asia Thai HMC Polymer, which had a production capacity of 300,000 tons polypropylene and 300,000 tons of polyethylene per year stopped production. Imports, therefore, decline into the country resulting in sharp competition on the domestic and international market for plastic basic materials.

Scarcity in supply resulted in a surge in the price of PE in the world market. The prices of PE and Polypropylene (PP) surged 33.3% in the second quarter of 2009 from US$ 1,050 to US$ 1.400 per ton and in turn the prices of downstream products using the materials were jacked up. The increases in the prices of propylene and ethylene followed a surge in the prices of naphtha. The price of the petrochemical feedstock to produce ethylene and propylene rose earlier to US$1,000 - US$1,100 per ton as a result of the soaring oil prices exceeding US$65 per barrel.

In the second quarter of /2010, the downstream plastic industry began to pile up stocks of basic materials in the form of PE and polypropylene (PP). INAplas predicted the increase in the prices of PE and PP on the domestic market will continue with the oil prices tending to continue to pick up latterly.

Characteristics and Classification of Products

Polyethylene (PE) resin is a midstream petrochemical product, a derivative of olefin. PE is produced through polymerization of ethylene.

Based on its density, PE resin consists of Low Density Polyethylene (LDPE) and High Density Polyethylene (HDPE). HDPE is more inflexible than LDPE.

Other than the two types there is another type, which was found later Linear Low Density Polyethylene (LLDPE) produced through polymerization of LDPE under low pressure.

LDPE is smooth that it is widely used as a basic material for thin plastic sheets and inner layer of plastic bags. HDPE is generally used as the basic material of containers and plastic bottles for food products such as cooking oil and lubricant oil, etc. LLDPE, which is tougher, is widely used as packaging material and laminating material.

Table - 1

Characteristics and uses of PE Resin

Form Products Characteristics Uses

High density HDPE Hard to semi-flexible, shining and clear surface, not transparent chemical bags, shopping bags,etc.

Low Density LDPE soft, flexible, the surface shining and clear packaging film, bags, waterproof membranes, cable and pipe wrappers

Table 1 - cont'd

Form Products Characteristics Uses

Linear low density LLDPE flexible, clear , shining, tough shopping bags, stretch wrap, garbage plastic bags, anti-static bags

Source : ICN

In Indonesian trade statistics, PE resin is classified as follows:

Polyethylene (PE) Tariff Code

(Harmonized System/HS)

Polyethylene with a specific gravity of < 0.94: 3901.10

Liquids or pastes:

- Dispersion or solution 3901.10.110

- Other liquids form 3901.10.190

- Granules 3901.10.200

- Other form 3901.10.900

Polyethylene with a specific gravity of >= 0.94: 3901.20

Liquids or pastes:

- Dispersion or solution 3901.20.100

- Other than solution 3901.20.190

- Granules 3901.20.200

- Other form 3901.20.900

Source: BPS

Capacity and production

Production capacity stagnant

In the past 10 years there was no significant change in the country's production capacity for PE. The capacity has remained unchanged from the level of 750,000 tons per year, although domestic requirement has continued to rise. Difficulty in securing the basic material of ethylene to produce PE has discouraged capacity expansion. The real problem is the scarcity in the supply of naphtha to produce ethylene.

Pertamina is the only producer of naphtha in the country. Its naphtha production has declined from year to year. This year, the country will rely on imports for 60% of its naphtha requirement.

Main Producers

Indonesia has only two PE producers PE PT. Chandra Asri Petrochemical Centre (CAPC) and PT. Titan Petrochemical Nusantara (TPN). CAPC operates an integrated facility producing upstream petrochemicals ethylene and propylene - and downstream products - high density polyethylene (HDPE). TPN is a producer of HDPE and low density polyethylene (LDPE).

CAPC has an annual production capacity 300,000 tons of PE consisting of 200,000 tons of LLDPE and 100,000 tons of HDPE per year.

TPN has a total production capacity of 450,000 tons including LLDPE and HDPE each 225,000 tons per year.

PT. Chandra Asri Petrochemical Centre

PT. Chandra Asri Petrochemical Centre (CAPC) was established in 1989 with an investment of US$ 1.7 billion as a joint venture between Barito Pacific (75%) and Marubeni of Japan (25%). CAPC started commercial production in 1995.

After several changes in the composition of the shareholders, in 2006 it was controlled by Temasek Holding of Singapore. .....

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