The Indonesian Plastic Industry

Indonesia’s plastic industry is growing healthily in line with the country’s increased consumption of all manner of products ranging from food & beverages. The local plastic market expanded by 22.47% in 2011 in spite of the global economic slowdown and is expected to continue growing albeit at a slower pace in 2012 at 7.75% to 3.48 million MET. Indonesia’s per capita consumption of plastic goods remains low at 10 kg annually compared to 56 kg in Thailand and 45 kg in Malaysia (Ministry of Trade and Industry) leaving plenty of scope for future growth. Indonesia has a relatively developed downstream plastic industry with plenty of potential for further growth, yet a reliance on imported raw materials has somewhat held back the sector’s potential on a global scale. In 2010, demand for olefin and aromatic products reached 2.9 million MET with local producers supplying 1.2 million MET. Demand for Polypropylene in particular has increased significantly from 750,000 MET in 2010 to over 850,000 MET in 2011 however only two local players have the capacity to produce on the scale required by the domestic plastic industry; namely Chandra Asri and Pertamina with a combined annual output of 520,000 MET (IFT). The under

capacity of oil refineries to produce naphtha and condensate for the upstream petrochemical industry has led to a weakness in raw material supply for the downstream plastic industry. The upstream plastic sector has therefore not been able to keep pace with local demand from the downstream sector. This has subsequently forced downstream players to import raw materials mainly from markets in the ASEAN which supply 85% of total imports as well as Europe and USA which make up the remaining 15% (Upstream Plastic Association APHINDO).

In addition to the under capacity of supply, the protective measures in place for local raw material producers through the Minister of Finance Decree No.19/2009 whereby up to 40% of imported petrochemical products such as polypropylene and polyethylene are subject to 15-20% import tariffs are actually hindering the domestic plastic and packaging industry. In 2011, the average price per tonne of polypropylene from Singapore and Thailand was $1,400 USD compared to $1,750 USD from Indonesian producers. Downstream plastic producers therefore prefer to import raw materials Indonesia’s packaging industry has

been expanding in line with the country’s increased consumer purchasing power and is expected to grow by 11.1% in 2012 reaching US$4.36 billion. Key sectors such as food and beverage as well as pharmaceuticals are the main sources of demand for packaging materials with the former consuming 67% of total packaging supply according to the Indonesian Packaging Federation. BRICdata Report released in January 2012 forecasts that the country’s packaging industry will reach a value of $9.6 billion USD in 2016.

Plastic packaging both flexible and rigid has become the most popular form of packaging making up nearly 60% of total packaging demand with paper and board packaging constituting 25%. However, local Indonesian packaging producers remain behind markets such as Japan, Thailand and China when it comes to knowhow, technology, use of the latest materials and production line flexibility.

Global Business Guide Indonesia – 2012