Abstract
The depreciation of the rupiah has given a fillip to the Indonesian
petrochemicals industry by raising the
cost of imports, with some
producers approaching maximum capacity utilisation. While this may give
the
industry a respite in a period when domestic consumption is falling,
domestic capacity restraints are
undermining the long-term sustainability
of some polymer consuming industries further downstream.
The volume of
demand for thermoplastics dropped 7% year-on-year (y-o-y) in Q109 to 564,000
tonnes,
according to the Asosiasi Industri Plastik dan Olefin Indonesia
(Association of the Plastic and Olefin
Industry of Indonesia, INAplas).
The decline was blamed on declining market activity by thermoplastics
consumers in Indonesia and the falling value of the rupiah, which went from
IDR9,000/US$ to
IDR12,000, helping to depress imports and leading to
domestic scarcity. Thermoplastic imports dropped
from just under US$1bn in
Q108 to US$531mn in Q109. The problem of scarcity was most acute in the
PP
sector. In Q109, PT Tri Polyta was operating its PP plant at 90% of capacity,
its highest ever level of
capacity utilisation. Its output rose by nearly
14% y-o-y to 91,000 tonnes in the quarter. Indonesian PP
domestic supply
is well below demand and the market has tightened as Asian PP output has
declined, in
response to deteriorating global market conditions.
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.
Indonesia will require an additional 1.4mn tonnes per annum (tpa) of ethylene
cracker capacity over the
next five years if it is to achieve
self-sufficiency in feedstock for the polymer sector; a development that
BMI believes is extremely unlikely, thereby forcing Indonesia to source
feedstock from abroad. Ethylene
consumption is expected to reach 2.9mn
tonnes in 2012 (up 125% over 2007), while propylene
consumption will total
1.4mn tonnes (up 45%). A petrochemicals national strategy developed by the
local
industry, the government and Japanese investors and published in
March 2007 envisages that over 50% of
national ethylene demand will be met
by imports up until 2010. BMI believes the figure will be closer to
70%,
due to a lack of domestic ethylene production capacity. Even before the
problems of oversupply
began plaguing the regional market, the Indonesian
petrochemical industry was in trouble. Development
has been slow, and even
some of the finished projects have subsequently been on hold due to
controversy
and irregular operations. BMI forecasts gloomier times ahead.
The prospects for further investment in
this segment are uncertain as
large amounts of capital and expensive technology are involved. Without
large investments to reduce the domestic shortfall of ethylene, parts of the
Indonesian petrochemical
industry could go into bankruptcy. If the sector
is to survive, consolidation is essential and acquisition by
global majors
may be necessary.
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