Indonesia Petrochemicals Report Q4 2009

Indonesia Petrochemicals Report Q4 2009

Rising naphtha costs have led to cuts in olefins output, prompting greater dependence on imported
feedstock further down the value chain, according to BMI’s latest Indonesia Petrochemicals Report.
Chandra Asri, which supplies ethylene to domestic customers such as vinyls
producers Sulfindo Adiusaha and Asahimas Chemical as well as monoethylene glycol
producer Polychem and propylene to PP producer Tripolyta, cut operating rates at its 600,000 tonnes per
annum (tpa) cracker in Merak due to poor margins related to rising naphtha costs. Run rates were cut to
75-80% in June, down from 90% in May, despite a rise in spot ethylene prices. The reduction in the
cracker’s operating rates was expected to increase demand for olefin imports. A significant appreciation
of the rupiah since early 2009 – a trend that is forecasted to persist throughout the year – which brought
down the cost of imports helped limit the negative effects of the cut in local ethylene and propylene
feedstock availability on downstream margins.
Local polymer demand has suffered as a result of the economic downturn, despite domestic consumption
in the wider economy holding up comparatively well. The volume of demand for thermoplastics dropped
7% year-on-year (y-o-y) in Q109 to 564,000 tonnes. Expected growth in domestic demand in H209
should help boost domestic polymer production, which is forecast to rise by up to 39% between Q109 and
Q309, before falling slightly in Q409. However, the strengthening of the rupiah and a cut in
petrochemicals output due to lower cracker run rates could see domestic producers lose out to imports.
The problem of scarcity has been most acute in the PP sector. Indonesian PP domestic supply is well
below demand, and the domestic market has also tightened as Asian PP output has declined, in response
to deteriorating market conditions. Strong domestic PP demand has encouraged Pertamina to go ahead
with its planned 250,000tpa PP plant, which is due to be completed in 2011 and will be Indonesia’s
largest PP producer. However, BMI cautions that greater PP self-sufficiency cannot be achieved if the
country does not sustain an adequate local supply of propylene, which as mentioned has been
problematic.
The petrochemicals sector is heavily reliant on domestic demand, which it is struggling to meet. Indonesia
is having difficulty competing on the regional market following the emergence of large-scale production
in the Middle East and increased capacity in China, which together will keep prices down and lead to
problems of over-supply. However, the country is not self-sufficient in petrochemicals, which means it is
compelled to open its market to cheaper foreign imports that undercut national producers.
In the Asia Petrochemicals Business Environment Rankings matrix, Indonesia is in 10th place out of 12
countries, with 48.4 points. Indonesia’s score has deteriorated due to the decline in output amid falling
demand and prices on the regional market.

Executive Summary ...5
SWOT Analysis....6
Indonesia Chemical and Petrochemical Industry SWOT . 6
Indonesia Political SWOT...... 6
Indonesia Economic SWOT ... 7
Indonesia Business Environment SWOT ..... 7
Global Market Overview....8
Global Ethylene Capacities ... 8
Table: World Ethylene Production By Country, 2008 And 2013 (‘000 tonnes capacity) ... 8
Polypropylene. 11
Global Oil Products Market Review.. 14
Table Global Oil Prices, 2003-2013 (US$ per barrel)... 17
Emerging Asia Petrochemicals Overview .18
Table: Asian Ethylene Projects... 20
Indonesia Market Overview...21
Market Structure.... 22
Supply And Demand...... 23
Table: Indonesian Petrochemical Sector Capacity . 23
PE Segment..... 24
Impact Of Rising PE Imports ...... 24
Other Polymers...... 25
Industry Trends And Developments ...26
Regulation 27
Recent Developments.... 27
Upstream . 29
Indonesia-Iran relations ...... 33
Mergers And Acquisitions.... 33
Petrochemicals Business Environment.....35
Table: Asia Pacific Petrochemicals Business Environment Ratings .... 35
Limits Of Potential Returns.. 35
Risks To Realisation Of Returns . 36
Industry Forecast Scenario ....38
Table: Projected Polymer Production And Consumption In Indonesia, 2009 (tonnes).... 38
Table: Indonesia’s Petrochemicals Sector, 2007-2013.. 39
Macroeconomic Outlook...... 40
Table: Indonesia – Economic Activity, 2007-2013.. 42
Company Monitor.....43
Chandra Asri (CACP)... 43
Petrokimia Gresik (Petrogres).... 44
Mitsui Chemicals ... 45
Country Snapshot: Indonesia Demographic Data ..46
Section 1: Population.... 46
Table: Demographic Indicators, 2005-2030.... 46
Table: Rural/Urban Breakdown, 2005-2030 ... 47
Section 2: Education And Healthcare 47
Table: Education, 2000-2005 ..... 47
Table: Vital Statistics, 2005-2030...... 47
Section 3: Labour Market And Spending Power ..... 48
Table: Employment Indicators, 2001-2006...... 48
Table: Consumer Expenditure, 2000-2010 (US$) ... 48
Table: Average Annual Manufacturing Wages, 2000-2012 (IDR) 49
BMI Methodology .....50
How We Generate Our Industry Forecasts ...... 50
Chemicals And Petrochemicals Industry .. 50
Cross Checks .. 51
Business Environment Ratings.... 51
Table: Petrochemicals Business Environment Indicators And Rationale.... 52