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Indonesia Petrochemicals Report Q3 2011
Business Monitor International, June 2011, Pages: 53
Indonesia Petrochemicals Report provides industry professionals and strategists, corporate analysts, petrochemical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Indonesia's petrochemicals industry.
Indonesia is facing increased dependency on imported polymers as rapid growth in consumption outpaces growth in production, according to BMI's latest Indonesia Petrochemicals Report.
Indonesia reported GDP growth of 6.1% in 2010 and this high level of growth is expected to continue into 2011 with growth forecast to reach 5.9% for 2011, driven by a continued surge in investment and private consumption. This should support Indonesian petrochemicals consumption across a broad range of products, although capacity constraints in the domestic industry mean that imports will largely benefit from the growth. This was demonstrated in trade figures for January 2011, which saw plastic imports grow 48.5% y-o-y to US$480.1mn.
The cessation of operations at PT Polytama Propindo in August 2010 has led to a surge in PP imports. InaPlas has forecast 960,000 tonnes of PP consumption in 2011, up to two thirds of which could be covered by domestic production by PT Tri Polyta and PT Pertamina. However, PP output is likely to be far lower than the 636,000tpa of available capacity and imports will represent more than half the domestic market. The closure of Polytama has created a gap of 180,000-240,000 tonnes of PP in the domestic market.
More needs to be done to improve feedstock supplies throughout the petrochemicals chain in terms of capacity growth in olefins and long-term supply contracts. There are widespread concerns of scarcity of domestically sourced materials over the short term as some producers have been cautious about increasing production, fearing it could swing prices the other way and create a situation of oversupply.
In response to the lingering problem of a lack of local petrochemicals capacities, the government redirected state-owned oil refiner Pertamina to build three refineries costing US$5bn each by 2020. This would reduce the Indonesian petrochemicals industry's reliance on imported naphtha, which has hampered the expansion of the sector. According to reports, the projects planned by the five Indonesian petrochemical companies – Chandra Asri, Dow Chemicals, Pertamina, Polytama and Try Polyta – will reduce the deficit in the supplies of petrochemical products. However, Indonesian petrochemicals producers are too small to stump up the necessary investment to take advantage of the additional feedstock and would need foreign partners. This looks an increasing likelihood.
Private consumption remains the main driver of the economy. At this point, we project private consumption growth to remain flat at 4.6% in 2011 before accelerating to 5.0% in 2012. Coupled with broadly declining unemployment rates and rising per capita income (per capita income jumped by 29.0% in US$ terms), the story for continued strong petrochemicals consumption growth is still intact for 2011, lifting demand for a range of PE and PP products. The PVC market should be assisted by increased construction activity. However, we caution that headwinds in the form of higher inflation and high interest rates will have an impact on private consumption.
Indonesia is set to increase capacity in 2011 and beyond, although this will not be nearly enough to achieve self-sufficiency let alone an export-oriented industry. PP production capacity is due to expand in 2011, requiring an increase in propylene supplies upstream. Chandra Asri Petrochemicals is carrying out de-bottlenecking of PP production to increase capacity from 360,000tpa to 480,000tpa from Q211 as well as raising ethylene capacity from 600,000tpa to 1mn tpa. Meanwhile, Pertamina is constructing a new 250,000tpa PP plant at its Balongan complex and Polytama is looking at the expanding its PP capacity from 280,000tpa to 440,000tpa in 2011. The expansion of Tripolyta's PP plant in Merak to 480,000tpa in 2011 will provide an extra 120,000tpa of PP capacity in Indonesia. With domestic PP demand due to reach 1.1mn tpa in 2011, the expansion of capacity at both Merak and Balongan will not be enough to reduce Indonesia's dependency on imported PP. However, BMI also believes that not enough progress was being made to ensure sufficient feedstock supply to the segment.
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