Lack of adequate feedstock and a poor business environment are undermining the recovery in Indonesian polymer output, according to a report by Business Monitor International (BMI).
In 2009, the Indonesian petrochemicals industry had olefins production capacities of 620,000 tpa ethylene and 655,000 mln tpa propylene. In the aromatics segment, Indonesia has plants with combined capacities of 335,000 tpa benzene and 895,000 tpa xylenes. These aromatic compounds are used to manufacture intermediate petrochemicals products, with Indonesia hosting 350,000 tpa styrene monomer (SM), 1.46 mln tpa terephthalic acid and 500,000 tpa vinyl chloride monomer. These feed polymer plants with combined capacities that include 55,000 tpa polystyrene (PS), 730,000 tpa polyethylene terephthalate (PET) and 620,000 tpa PVC. In the styrenics chain, Indonesia also has capacities of 60,000 tpa styrene-butadiene rubber and 40,000 tpa acrylonitrile-butadiene-styrene copolymer. In the polyethylene segment, Indonesia has capacities totaling 550,000 tpa HDPE and 200,000 tpa LLDPE. In addition, it has 670,000 tpa PP capacity. In the fertilizer sector, Indonesia possesses 6.14 mln tpa ammonia and 8.03 mln tpa urea.
A number of plants were shut in Q209-Q309 as producers brought forward maintenance turnarounds in order to clear inventories and stabilise the market. Chandra Asri cut operating rates at its 620,000 tpa cracker in Merak to around 75% in Q209 due to poor margins related to rising naphtha costs. In Q3-09, Chandra Asia also reduced operating rates at its 360,000 tpa propylene unit due to poor margins. At the same time, downstream polymer plants were cutting run rates, partly in response to poor demand conditions as well as a lack of feedstock.
Indonesia's PP deficit is becoming more problematic, prompting an increase in investment in the sector. In June 2009, Pertamina selected Dow Chemical's UNIPOL PP Process technology for its new 250,000 tpa PP plant at its Balongan complex. The project is expected to be completed by 2011 and will cost up to US$300 mln. Local polymer demand has suffered as a result of the economic downturn, despite domestic consumption in the wider economy holding up comparatively well. The decline was blamed on declining market activity by thermoplastics consumers in Indonesia and the falling value of the rupiah, helping to depress imports and leading to domestic scarcity. Yet, despite poor demand, the government is reducing import tariffs on PE and PP due to the enduring problem of scarcity. In August 2009, the Industry Ministry proposed to waive import duties on PE and PP in 2010. This would apply to PE and PP products that are yet to be manufactured locally and are used in plastic packaging. Although PE and PP are already produced locally, they are yet to meet locally required specifications. Strong domestic PP demand has encouraged Pertamina to go ahead with its planned 250,000 tpa PP plant, which is due to be completed in 2011 and will be Indonesia's largest PP producer. However, the report cautions that greater PP self-sufficiency cannot be achieved if the country does not sustain an adequate local supply of propylene.