Industrial Gas Prices Threaten to Breach US$20, Squeezing Indonesian Plastics Industry from All Sides

The national petrochemical and plastics industry is confronting multiple layers of pressure this year. The rupiah’s depreciation to nearly Rp18,000 per US dollar, a surge in global raw material prices, rising industrial gas costs, and a flood of cheap imports from China have combined to erode the competitiveness of domestic businesses. This situation arises while the industry is still striving to maintain production levels and defend the domestic market from the onslaught of increasing imported goods. Secretary General of the Indonesian Olefin, Aromatic, and Plastics Industry Association (Inaplas), Fajar Budiono, explained that gas is a crucial component in the petrochemical industry, particularly in the cracking and polymerisation processes. According to him, as long as the Certain Natural Gas Price (HGBT) scheme operated in the US$6-7 per MMBTU range, the industry was relatively able to maintain its competitiveness. “With the previous HGBT, we were actually greatly assisted because we could compete with imports, and our utilisation rate was slightly helped by the cheap gas price of US$6-7. But now the offers are above average, from 15 to even US$20,” Fajar said, quoted from a written statement received on Friday (5/6). This increase in energy costs comes as regional competition intensifies. In several ASEAN countries, industrial gas prices remain below US$9 per MMBTU. Meanwhile, Chinese producers enjoy cheaper energy support and greater availability of raw materials. External pressure is also increasingly felt through the surge in imports of plastic and petrochemical products. Goods from China are entering the domestic market at prices that are difficult for local producers to match. “China is now very massively sending its goods everywhere. To Indonesia, we now estimate that goods from China could reach 300,000 tonnes per year,” said Fajar. This situation is forcing domestic producers to sacrifice margins to maintain market share. Several plants are even beginning to adjust utilisation rates to avoid greater pressure. “Even now we are trying with 75 per cent utilisation, trying to be slightly below the Chinese price. So we are eroding our margins quite significantly,” he revealed. On the other hand, exchange rate pressure is making conditions more complicated. When the rupiah weakens, the cost of importing raw materials increases. However, this cost increase cannot be fully passed on to selling prices because the market is flooded with cheap imported products. “So there are two things. From the upstream industry side, we would normally just pass through. But with the flood of imported goods, we cannot pass through because we have no choice but to lower prices,” he said. This pressure is also felt by downstream industry players or converters who imported raw materials when prices were still high. When the goods arrive in Indonesia, the market price actually undergoes a sharp correction, squeezing business margins further. Concerns are now shifting from mere margin decline towards the threat of a production slowdown. If cost pressures continue, reductions in working hours and employee furloughs are options that companies are beginning to consider. “If this continues with new prices above US$15, this is getting close. Previously we anticipated that furloughing employees was still far off,” said Fajar. Meanwhile, Yusuf Rendy Manilet, a researcher at the Center of Reform on Economics (CORE) Indonesia, assessed that the petrochemical industry is currently facing three major pressures simultaneously: a surge in global raw material prices, a weakening rupiah, and industrial gas supply issues. According to Yusuf, the conflict in the Middle East has driven naphtha prices up by more than 50 per cent compared to before tensions escalated. This condition is exacerbated by the exchange rate depreciation, which increases the cost of importing raw materials and energy. “Indonesia’s petrochemical industry is currently facing three major pressures that are arriving simultaneously and reinforcing each other. First, global raw material prices have soared. Second, the rupiah has weakened to around Rp18,000 per US dollar. Third, industrial gas prices, which have been considered a pillar of competitiveness, have not yet fully provided protection for industry players,” said Yusuf. According to him, the main problem with industrial gas is not just the price stipulated in the HGBT policy, but the limited supply that the industry receives. “The realisation of HGBT gas allocation is still far from the industry’s needs, so some companies have to purchase regasified gas at prices that can reach nearly three times higher,” Yusuf stated. As a result of the combination of these various pressures, domestic plastic product prices have experienced significant increases in recent months. However, the room to raise prices is also increasingly limited because public purchasing power has not fully recovered. “The impact is already visible from the increase in domestic plastic prices, which reached around 40-60 per cent in April 2026,” he said. Amid the existing pressures, Yusuf believes that additional production capacity from new petrochemical complexes domestically can help reduce some of the dependency on imports. However, this improvement is not yet sufficient to overcome the industry’s structural problems. “The policy focus must not only be on keeping gas prices low, but also on ensuring supply availability,” he concluded.