Poly Pripylene Resins industry 2010

INDONESIAN COMMERCIAL NEWSLETTER

March 2010

DEVELOPMENT OFPOLYPROPYLENE (PP) RESIN INDUSTRY IN INDONESIA

Backgrounds

Development of Polypropylene (PP) industry depends partly on the characteristics of petrochemical industry, which in turn depends on the supply and prices of oil as the main feedstock.

The PP industry depends on the availability of basic materials. The production capacity of the country PP industry has remained unchanged from 605,000 tons per year in the past decade. The country has three PP producers PT. Tri Polyta Indonesia, PT. Polytama Propindo and PT. Pertamina. The producers have planned capacity expansion to meet the domestic requirement. PT. Polytama Propindo plans to increase its capacity by 160,000 tons this year, PT. Tri Polyta Indonesia plans capacity expansion by 120,000 tons in 2011.

Until now, there is still imbalance between supply and demand for PP. The country's PP production totaled 561,346 tons in 2008 up 6.9% to 600,000 tons in 2009. In 2009, TPI succeeded in increasing sales 17% from 330,500 tons in 2008 to 385,700 tons in 2009. The domestic PP market began to improve in 2009 from the slump in 2008.

The country's PP consumption was around 800,000 tons in 2009. The PP consumption is expected to rise in this year and in the following years with growing demand from plastic industry. However, there are a number of factors discouraging or hampering plans for capacity expansion to meet the growing demand such as scarcity in supply of the feedstock propylene. The country still needs to import 30% of its propylene requirement.

In addition with the full implementation of AFTA, imported products of PP from Thailand and Malaysia will be another major factor discouraging capacity expansion by local producers. With 0% import duty imported products would be more competitive. The two neighboring countries already have large exportable surplus of PP. Meanwhile, China is still need large imports of PP every year, therefore, that country also needs large supply of propylene to produce PP.

The association of plastic, aromatics and olefin industries (INAplas) has asked the government to postpone implementation of AFTA until 2015. The association has also called for the postponement of the ASEAN-China Free Trade Agreement and FTA with other countries including India, Korea, Japan and Australia and New Zealand as the domestic industries are not yet ready for competition.

Characteristics of product

Polypropylene (PP) resin is a midstream petrochemical product, a derivative of olefin centre produced from propylene polymerization of process. Propylene is a derivative of naphtha or natural gas produced through cracking of hydrocarbon molecules. PP is used a feedstock for various types of plastic products different in the process of crystallization, purity, rigidity and melting points.

PP, therefore, could be used as substitute for a number of other polymer products such as polyethylene (PE), wood fiber, natural fiber and certain metal. PP consists of three types - Homo-polymer Propylene, Random copolymer (propylene-ethylene) and Random polymer (propylene-ethylene-butene).

Copolymer PP is formed from propylene with the addition of other monomers in small proportion (1% - 7% ethylene) to turn out tough product resistant to collision. This type of PP is used for durable gods such as electrical equipment, household wares and parts of car body. It is also sued for other applications such as printed materials, films and lamination.

Addition of butene to PP could change the characteristics of PP. Normally the result of the mixture is used as a layer to absorb heat on PP films. PP could also be changed through the process of compounding. The process is made with addition of a small portion of additive in the polymer already melted. The additive could be rubber, filler, material that could increase resistance and materials to stabilize ultra violet ray that the polymer is durable for out door use.

Capacity stagnant, production growing 3.4% per year

In the period of 2005-2008 the country's PP production capacity remained unchanged from the level of 605,000 tons per year. There was no capacity expansion mainly because of the scarcity in supply of propylene as the feedstock.

Meanwhile, the domestic production grew 3.4% a year from 525,915 tons in 2005 to 600,000 tons in 2009.

PT. Tri Polyta Indonesia (TPI) succeeded in increasing its PP production to 460,000 tons in 2009, from 360,000 tons in the previous year. In increasing the production, TPI set aside US$25 million for capital spending. The fund was used to buy new machines to improve productivity of its factory in Cilegon, Banten.

The PP products of TPI vary to meet domestic demand including for plastic bag, carpet and house ware industries.

The country has three producer of PP including PT Tri Polyta Indonesia, PT Polytama Propindo and PT Pertamina (Plaju).

PT Tri Polyta Indonesia

PT Tri Polyta Indonesia (TPI) which came on stream in 1992 in Cilegon, Banten, is the largest PP resin producer in Indonesia. The company uses the technology of Gas UNIPOL developed by Union Carbide Corporation and Shell Chemical Company, TPI started operation in 1992 with two production lines and production capacity of 200,000 tons per year.

The products of TPI are the types of PP resin including homo-polymer, Random Copolymer and Block Copolymer, al with the brand of Trilene.

The products are used for films, Injection Moulding, Sheet thermoforming, yarn and fiber multifilament, etc.

In 2009, TPI succeeded in posting a 17% increase in sales to 385,700 tons from 330,500 tons in 2008, although its income fell slightly 5% to Rp 4.74 trillion from Rp 4, 988 billion in 2008.

However, the performance of TPI was quite impressive with net profit at Rp 483 billion as against a net loss of Rp14 billion in 2008. TPI gained from the falls in the prices of petrochemical products and derivatives. The fall in the selling prices came at the same time with the declines in the prices of basic materials.

In 2010, TPI plans to expand its production capacity to 480,000 tons from 360,000 tons a year with an investment of US$ 28 million. The capacity expansion started in January and is expected to start commercial operation at the end of the first quarter of 2011. The de-bottlenecking project will strengthen the competitiveness of TPI on the domestic PP market, which continues to grow by 4%-5% per year.

PT Polytama Propindo

PT Polytama Propindo is the second largest producers of PP resin in Indonesia with a production capacity of 180,000 tons in 1996 and in 2005 its production capacity was expanded to 200,000 tons.

PT Polytama Propindo is located Balongan, Indramayu, and West Java near the Pertamina's Exor 1 oil refinery, which supplies propylene for PT Polytama Propindo.

PT Polytama Propindo is a joint venture established by PT Tirtamas Majutama (80%), which is owned by tycoon Hashim S. Djoyohadikusumo and Nissho Iwai Corp. of Japan (10%) and BP Chemical Co. of Britain (10%).

In mid 2008, PT. Polytama suspended operation as it underwent routine overhaul to coincide with the overhaul of a number of machines of the refinery of PT Pertamina in Balongan. The process of overhaul was completed in December 2008.

In 2010, PT. Polytama plans expansion of its capacity by 160,000 tons per year, from 280,000 tons to 440,000 tons. The project is estimated to cost US$ 20 million.

The new production facility is expected to start operation in July 2010 reducing the deficit in the domestic supply of PP currently around 300,000-350,000 tons. According to INAplas, the country needs around 700,000-800,000 tons of PP plastic per year.

PT Pertamina - Plaju

The Polypropylene plant of Pertamina in Plaju South Sumatra was built in 1971 with a production capacity of 20,000 tons per year. In 1994 its capacity was expanded to 45,000 tons per year.

Pertamina Plaju receives supply of feedstock in Raw Propane propylene from FCCUS refinery, Sungai Gerong, South Sumatra. The products of Pertamina Plaju is Polytam / Polypropylene pellet (plastic ore) which is produced through polymerization of propylene gas with modification of several additives including antioxidant, stabilizer, lubricant, anti-block and slip agent.

PT. Petamina plans expansion by building PP plant in Balongan, Indramayu. In 2008, Pertamina already signed EPC contract with PT Rekayasa Industri and Toyo Engineering Corp to convert gas waste from the Balongan refinery into propylene.

Pertamina has secured a loan of US$225 million to finance the PP factory development in Balongan from a Japanese syndicate of Sumitomo Mitsui Banking Corporation (SMBC), BNP Paribas, and HSBC. The risk is covered by Nippon Export and Investment Insurance (NEXI) from Japan. .....

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