Entrepreneurs Warn of Potential Layoffs, Starting with Reduced Working Hours
The national petrochemical industry is facing intense pressure amidst a massive influx of cheap imported goods, particularly from China. Fajar Budiono, Secretary General of the Indonesian Olefin, Aromatic, and Plastic Industry Association (Inaplas), stated that while the threat of mass layoffs has not yet materialised in the immediate term, the risk remains.
However, if production cost pressures, such as rising gas prices, continue to escalate, companies will have little choice but to implement efficiency measures that could lead to workforce reductions. “The potential exists, but it is still far off. For now, they will first reduce utilisation; in the downstream industry, utilisation was previously between 60-65%. This will likely drop below 60%, and if it falls below that level, they will implement efficiency measures by reducing working hours first. Only after that, if the situation becomes unsustainable, will they resort to workforce reductions or temporary layoffs. But that is a long-term scenario, and we hope it does not happen,” Fajar told CNBC Indonesia on Monday.
The industry is currently attempting to survive by curbing production capacity and making operational adjustments. However, the operational space for companies will narrow significantly if industrial gas prices rise substantially. “If the gas price remains at the proposed US$20, then we are very close to layoffs. We previously anticipated that layoffs were far off, but if this new price above US$15 is implemented next month, the threat is imminent, as the primary impact will be felt by the lower-income segments of society,” he added.
Meanwhile, the surge of Chinese imports is further straining the national industry. Fajar revealed that the volume of goods from China entering Indonesia has surged in recent years. “China’s market entry into Indonesia is now massive; we estimate that goods from China could reach 300,000 tonnes per year across all product types. In 2023, it was below 50,000 tonnes; in 2024, it may be around 70,000-80,000 tonnes; in 2025, it rose to 200,000 tonnes. For 2026, we expect it to reach 300,000 tonnes at relatively low prices,” he explained.
Chinese producers possess a cost advantage that is difficult for domestic industries to match. Supported by abundant raw materials, their production costs are also bolstered by highly competitive electricity and gas prices. “Because they have more abundant and cheaper feedstock, and their production costs are supported by cheap electricity and gas, we are inevitably at a competitive disadvantage,” Fajar said.
This pressure has become evident throughout the second quarter of this year. The large-scale entry of imports has caused several factories to reduce utilisation levels after a period of recovery. “In May, there was a significant arrival of goods from China. Consequently, in June, we have averaged a further reduction in utilisation. Previously, during the rise in raw material prices, utilisation grew to 70%, then 75%, and some even reached 80%,” Fajar noted.
He added that industry players are now forced to reduce production capacity to maintain market balance and avoid prolonged price wars with imported products. Some domestic producers have already begun cutting profit margins to defend their market share against the influx of cheap foreign goods. “We are currently attempting to operate at 75% utilisation, pricing ourselves slightly below China’s prices, which is significantly eroding our margins. We are still calculating the exact percentage,” he concluded.