INAPLAS Reveals Import Influx and Energy Supply as Major Challenges
The Indonesian Olefin, Aromatic, and Plastic Industry Association (INAPLAS) has revealed that the massive influx of cheap imported products, the weakening exchange rate, and issues regarding energy pricing and supply are major challenges facing the national petrochemical industry.
In a statement in Jakarta on Friday, INAPLAS Secretary General Fajar Budiono explained that gas is a vital component in the petrochemical industry, particularly in cracking and polymerisation processes. He noted that while the Specific Natural Gas Price (HGBT) scheme previously helped maintain competitiveness by keeping prices at around 6-7 US dollars per MMBTU, current offers have risen to between 1-5 and even 20 US dollars per MMBTU. In several ASEAN nations, industrial gas prices remain below 9 US dollars per MMBTU, making foreign products more competitive.
Furthermore, Fajar stated that the industry’s challenges are intensifying as plastic and petrochemical products from China continue to flood the domestic market at prices that local producers struggle to match. “China is currently entering markets very massively. In Indonesia, we estimate that Chinese goods could reach up to 300,000 tonnes per year,” said Fajar.
This influx of cheap imports has forced domestic companies to sacrifice profit margins to maintain market share, with some factories even reducing production utilisation levels. “We are currently attempting 75 per cent utilisation, trying to stay slightly below Chinese prices. Consequently, we are eroding our margins quite significantly,” he added.
On the other hand, the weakening Rupiah is adding further pressure as the cost of importing raw materials increases. However, these rising costs cannot be fully passed on to selling prices due to intense competition from imports. This pressure is also felt by downstream industry players or converters who imported raw materials when prices were high, only to see market prices drop sharply upon arrival in Indonesia.
Yusuf Rendy Manilet, a researcher at the Centre of Reform on Economics (CORE) Indonesia, assessed that the petrochemical industry is currently facing three simultaneous pressures: the surge in global raw material prices, the weakening Rupiah, and gas supply issues. According to Yusuf, conflicts in the Middle East have driven naphtha prices up by more than 50 per cent compared to pre-tension levels. He noted that the primary issue with industrial gas is not just the price stipulated in the HGBT policy, but the limited supply available to the industry, which causes price discrepancies. Due to these combined pressures, domestic plastic product prices have seen significant increases, with some rising by 40 to 60 per cent as of April 2024. Yusuf suggested that increasing production capacity through new domestic petrochemical complexes could help reduce import dependency.