Industry Profile: Plastic resin Industry in Indonesia

MARKET INTELLIGENCE REPORT ON

DEVELOPMENTS OF POLYPROPYLENE (PP) RESIN INDUSTRY IN INDONESIA

May 2007

Backgrounds

The price of polypropylene in the Asian markets has continued to climb to follow the trend of the price of its basic material propylene. The price of propylene rose with the soaring price of crude oil that exceed US$ 70 a barrel in August and September, 2006.

With the fact that there are few upstream petrochemical factories in ASEAN any change in the performance of one of the factories will have its effect on the prices of petrochemical products in this region.

In 2006, there was scarcity in the supply of propylene in Indonesia as two local producers Chandra Asri and Pertamina reduced their production as heir factories underwent regular maintenance.

As a result a number of polypropylene producers in Indonesia such as Tri Polyta were forced to increase imports which in turn caused a rise in the price of propylene in the Asian market.

Production Capacity Remains Unchanged

Toward the end of 2006, the country's polypropylene industry operated almost at full capacity. Production totaled 535,750 tons or more than 80% of the total capacity.

The country's production capacity for polypropylene has remained unchanged for more than 10 years. The availability of basic material is a factor determining development of the industry.

Petrochemical industry is a strategic industry. It requires high technology and large investment. There are few companies having high level technology needed to develop petrochemical factory. Union Carbide Corp., Shell Chemical Co., BP Chemical are among the owners of the technology having involved in the development of petrochemical l industry in Indonesia.

In addition, petrochemical industry is capital intensive. The industry needs supporting facilities especially infrastructure that also require large investment. Those factors explain the causes of the sluggish growth of polypropylene industry in Indonesia.

Clusters of plastic industries

The association of olefin and plastic industries (INAplas) and the government have agreed to put upstream and downstream plastic industries in clusters depending on their relations with other industries.

There are three clusters in the plan:

" Banten cluster for olefin industry

" Tuban cluster for aromatic industry

" Bontang cluster for methane industry

So far the project already implemented is for the Banten cluster. Work has started to improve infrastructure including roads, railway, pipelines, waterworks, seaports, etc.

Supply of basic materials and oil fuel in competitive prices are also important factors. Development of the cluster is already underway for two years.

Secretary General of INAPlas Budi Susanto Sadiman said recently the initiative is expected to herald the second wave of petrochemical development in the country. Budi predicted that the strong growing demand at present will attract investment. Brisk development of petrochemical industry in a scale recorded in 1990-1995 will repeat itself in 2010 to 2015.

Key Players: Tri Polyta the largest producer

There are three producers of PP resin in Indonesia -- PT Tri Polyta Indonesia (TPI), PT Polytama Propindo and PT Pertamina (Plaju). TPI is the largest producer.

PT Tri Polyta Indonesia

PT Tri Polyta Indonesia (TPI) came on line in 1992 in Cilegon, Banten. It uses the gas technology of UNIPOL developed by Union Carbide Corporation and Shell Chemical company, TPI started operation operating two production lines with annual production capacity of 200,000 tons.

In 1995, its third production facility came on stream increasing its production capacity to 360,000 tons per year.

Its founding shareholders were PT Bima Kimia Citra (31.22%) from the Bimantara Group, Prayogo Pangestu (8.51%), Commerzbank (SEA) Ltd. (7.08%), Henry Pribadi (6.73%), Ibrahim Risjad (5.31%), Wilson Pribadi (3.89%), Johny Djuhar (2.13%), Henry Halim (0.71%) and investing public (34.42%). In June, 2001 PT Bima Kimia Citra and Henry Pribadi sold their stakes.

In December, 2003, its shareholders included Prajogo Pangestu (46.46%), Commerszbank (SEA) Ltd. (7.08%), Ibrahim Risjad (5.31%), Wilson Pribadi (3.89%), Johny Djuhar (2.13%), Henry Halim (0.71%) and the public (34.42%).

TPI produces PP resin in the form of Homopolymer, Random Copolymer and Block Copolymer, using the brand of Trilene. The product is used as feedstock for plastic film, injection moulding, Sheet thermoforming, plastic yarn and fiber multifilament, etc.

PT Polytama Propindo

PT Polytama Propindo is the second largest producer of PP resin in Indonesia with an annual production capacity of 180,000 tons in 1996. In 2005, the production capacity was increased to 200,000 tons.

PT Polytama Propindo is located in Balongan, Indramayu, West Java near the refinery of Pertamina Exor 1, which supplies propylene for PT Polytama Propindo.

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

PT Pertamina - Plaju

The polypropylene plant of Pertamina in Plaju, South Sumatra, was build in 1971 with an annual production capacity of 20,000 tons. In 1994, it underwent revamping to expand its capacity to 45,000 tons per year.

The basic material for Pertamina Plaju in the form of Raw Propane propylene is supplied from the FCCUS plant, Sungai Gerong, South Sumatra.

Pertamina Plaju produces Polytam/Polypropylene pellet, which is produced through polymerization of propylene with several additives namely antioxidant, stabilizer, lubricant, anti-block and slip agent.

Production slowly scaling up

There has been no expansion of production capacity for polypropylene in Indonesia in the past several years although gradually the production has continued to scale up - from 490,000 tons in 2003 to 507,000 tons in 2004, and to 525,915 tons in 2005 and to 535,750 tons in 2006.

The production capacity remained unchanged until 2006 from 605,000 tons per year in 2003.

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