Indonesian polymer producers tighten domestic grip

Indonesian polymer producers are to tighten their grip on the domestic market next year as they face increasing competition from overseas.

Indonesian polyethylene (PE) and polypropylene (PP) supplies will increase in this year's final quarter, when domestic producers Chandra Asri and Polytama Propindo debut new capacity.

Chandra Asri is expected to start up soon its 400,000 t/yr linear low-density polyethylene/high density polyethylene plant at Cilegon. It is on track to expand its current PP production from 480,000 t/yr to 590,000 t/yr in the fourth quarter. Chandra Asri operates Indonesia's sole petrochemical cracker, which uses naphtha feedstock.

Polytama Propindo is also expected to expand its PP capacity at Balongan from the current 260,000 t/yr to 300,000 t/yr by the end of this year.

The new capacity will see Indonesian polymer producers renew their focus in the domestic market and expand their market share beyond their core customer base. Producers from next year are expected to increase their market penetration among medium-size converters that number in the hundreds.

Indonesian producers are expected to compete on price and may reduce additional premiums levied on domestic buyers from next year to secure market share. The strength of the US dollar against the Indonesian rupiah benefits domestic suppliers, who sell in the local currency to buyers.

Indonesian PE consumption is estimated at 1.4mn t/yr, while PP consumption is around 1.8mn t/yr.

With domestic supplies insufficient to meet demand, Indonesian converters often look to southeast Asia suppliers such as Malaysia's Petronas and Thailand's PTT for duty preferential material. Southeast Asian producers can sell to Indonesia at zero tariffs because of the Asean free trade agreement.

Other producers in southeast Asia will also add to PE and PP production in the coming six months.

Malaysia's Petronas is raising polymer production at Pengerang with resins expected to hit the market in next year's first quarter. Pengerang can produce 750,000 t/yr of PE and 900,000 t/yr of PP when fully on stream.

Hyosung will start up its 300,000 t/yr PP plant in Vietnam in the fourth quarter, while Philippine producer JG Summit will also expand its PP line from 190,000 t/yr to 300,000 t/yr, also around the same time.

Southeast Asian producers are expected to continue to dominate the Indonesian import market in 2020. Saudi, Qatari and UAE polymer producers are less active in Indonesia this year because of higher import duties and better netbacks in China. Middle East origin PE and PP are subject between 5pc and 15pc of import duty in Indonesia, depending on polymer grades.

But larger Indonesian converters that export finished polymer products can qualify for a tax exemption. Large-scale buyers of PE and PP in Indonesia include Bukit Mega, Panca Budi and Akino, which are also stockists.