BMI's Executive Summary

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Indonesia's petrochemical industry needs large investments to reduce the domestic shortfall of ethylene, and already faces stiff competition in the global market. According to BMI's latest Indonesia Petrochemical Report, the prospects for further investment in this segment are uncertain as large amounts of capital and expensive technology are involved in plugging the feedstock deficit.

Of all the polymers, Indonesia is only self-sufficient in PVC, although the country could slip into deficit in this product by 2010. Indonesia will require an additional 1.4mn 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, therefore 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%). Accelerating economic growth has pushed up monomer and polymer demand, raising the country's dependence on imports at a time when global feedstock prices are reaching all-time highs. The shortfall in polypropylene (PP) is forecast to rise to around 730,000 tonnes in 2012 from 460,000 tonnes in 2007. The reopening of the high density polyethylene (HDPE) plant at Peni using ethylene from Titan Petrochemicals' Pasir Gudang complex would help reduce the polyethylene (PE) deficit.

The most significant development in the Indonesian petrochemicals sector in Q407 was PT Barito Pacific's acquisition of a 70% stake in the country's largest petrochemicals producer, PT Chandra Asri. Both Barito Pacific and Chandra Asri are associated with Indonesian tycoon Prajogo Pangestu and his family, who also have a 60% stake in the troubled polypropylene producer PT Tri Polyta Indonesia. Barito Pacific's take-over of the petrochemical firm came after Chandra Asri acquired SMI in April 2007. SMI is the country's only producer of ethyl benzene (EB) and styrene monomer (SM). The acquisition will help improve SMI's production efficiency by integrating it with one of its main suppliers of ethylene.

BMI has revised its method of risk scoring in the petrochemicals sector, introducing dynamic scores that reflect future growth as well as current capacities and the size of the internal market, along with investment risk assessments of the political, economic and regulatory environments. In the Asia Petrochemicals Business Environment Rankings matrix, Indonesia is in fourth place, with 45.9 points, well below the regional average of 58.7 points. It is 14.6 points behind India and 3.3 points ahead of the Philippines. The Indonesian petrochemicals sector suffers from a lack of locally available feedstock. Indonesia will require an additional 1.4mn tpa of ethylene cracker capacity over the next five years if it is to achieve self-sufficiency in feedstock for the polymer sector, yet plans for expansion remain on the drawing board. Indonesia's polymer and derivative operations are also small in comparison to other countries in the region. While Indonesia is open to investment and there are no special restrictions on the investment in the petrochemical sector an unattractive prospect. Japanese petrochemicals investors have recently turned down the chance to invest in Indonesia, citing these concerns. One major industry development has been the government's EO to reduce Common Effective Preferential Tariff (CEPT) rates on certain plastic and petrochemicals resins to a uniform 5%. The new EO lifts the suspension of tariff concessions on 11 petrochemicals and plastics products under the CEPT scheme of the Association of South East Asian Nations (ASEAN)'s ASEAN Free Trade Agreement (AFTA).

Contents

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Chapter 1 - Executive Summary

Industry Overview

Government Initiative

Industry Developments

Industry Outlook

Indonesia Chemical and Petrochemical Industry SWOT

Chapter 2 - Market Overview

Fertilisers

Plastics

Market Structure

Supply And Demand

Table: Indonesian Petrochemical Sector –Cracker Capacity Historical Data & Forecasts ('000 tpa)

PE Segment

Impact of Rising PE Imports

Chapter 3 - Industry Developments

Declining Supply Of Feedstock

Company Developments

Concern Over Fertiliser Subsidy

Impact of Fuel-Cost Spiral

Chapter 4 - Industry Forecast Scenario

Forecasts for PP and PE Consumption

Production Capacity Forecast for PE Resin Industry

Forecast Production of PE resin, 2004-2008

Table: Indonesia Petrochemicals Sector: Data and Forecasts

Chapter 5 - Economic Outlook

Table: Indonesia: GDP and Population

Chapter 6 - Company Monitor

Profiles

Chandra Asri

Petrokimia Gresik (Petrogres)

Mitsui Chemicals

Chapter 7 - BMI Forecast Modelling

How we generate our industry forecasts

Petrochemicals Industry

Cross checks

Competitive Landscape for Asia Petrochemicals Reports: Sample of Companies Ranked

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Comparative company analyses and rankings by US$ sales, % market share, employee size, registration date and ownership structure. Company SWOTs (Strengths, Weaknesses, Opportunities, Threats) on all leading international and national operators in each market, including competitive intelligence in the following: Overall geographic presence, competitive positioning against local companies; production capacity, sales and market share; joint ventures, foreign direct investment, projects and acquisitions strategy.