RI petrochemical demand threatened by rupiah's fall

RI petrochemical demand threatened by rupiah's fall

JAKARTA (CNI): The recovery of Indonesian petrochemical demand
is being jeopardized by the recent fall in the value of the
rupiah and the return to sharp fluctuations in its value from one
trading day to the next, CNI learned on Thursday.

Demand has rebounded since the collapse of the Suharto
government in May 1998 led to the country's virtual economic
paralysis.

However, demand still far outstrips supply for certain key
products.

For instance, nameplate capacity for PVC totals 620 000
ton/year against an estimated 250-270 000 ton/year of consumption
for 2000.

PE capacity totals 750 000 ton/year against 2000 forecasted
demand of 560 000 ton/year.

The rupiah has depreciated from 9700 on 15 February to today's
Rp 10089 per US dollar as a result of lack of confidence in the
Wahid government and social unrest.

"Most of our customers who price their finished products in
rupiahs have stopped buying from us," said a source at PP
producer, Polytama Propindo.

The dilemma for the downstreamers is that if they convert
rupiah into US dollars to buy polymers, when they come to sell
their finished goods the rupiah might have appreciated to the
point where they cannot even cover their raw material costs.

In addition, the weaker rupiah means weaker demand due to
higher inflation for finished goods. And consumer confidence and
therefore spending is likely to be in decline over fears of
another economic crisis. And as for PE producer PT Peni, the fall
in the rupiah has left it unable to afford imported ethylene.

"Because of the decline in the rupiah, we prefer local
supplies. However, Chandra Asri cannot supply enough for us to
run our plant at an operating rate of 50 percent," said Peni's
marketing director, Budi Susanto.

Chandra Asri is Indonesia's sole cracker operator. Indonesia
has a substantial C2 deficit. But even if Peni could get the
ethylene it needed to run at more than 50%, it might not be able
to justify a higher operating rate. Susanto said that most of
Peni's customers have adopted a "wait and see" approach because
of the decline in and the fluctuation of the value of the rupiah.

The same applies to the customers of Styrindo Mono Indotama.

And the company added that the regional slump in styrene
demand has prevented it from increasing its export percentage to
more than 80 percent of production to compensate for the decline
in domestic demand.