Tri Polyta poised to become largest polypropylene producer

JAKARTA (JP): Tri Polyta Indonesia (TPI), buoyed by the recent success of its international share offering, is confident of its future as the largest single polypropylene plant in Southeast Asia, according to the maiden issue of the Singapore-based Asian Chemical News weekly magazine yesterday.

The weekly quoted Lloyd Lochra, TPI's vice president, as saying that the company's offering of 7.47 million American Depositary Shares, each representing 10 shares, was now trading at a range of US$27-28, up from their July 21 listing of $21.

TPI brought its first two polypropylene trains on stream in Serang, West Java, in August 1992 and construction of the third train, which will be the country's first production of higher value-added copolymer resins, is underway with the start of commercial operations due in the third quarter of 1995.

The existing plant, which uses Unipol gas-phase technology, was effectively debottlenecked at the end of 1993 by almost 35 percent, increasing the effective capacity to 215,000 tons a year from 160,000 tons. The third reactor train will add another 105,000 to 120,000 tons a year at a cost of around $78 million.

Investors have been encouraged by strong expected growth rates in polypropylene demand, given the fact that Indonesia's per capita consumption of polypropylene is one of the lowest in Asia. Total demand in 1993 was 355,000 tons, which was met by slightly over 50 percent being imported.

The only other current domestic producer is the state-owned oil company Pertamina, whose capacity of 6,000 tons a year is being increased this year to 40,000 tons.

Demand

Despite the fact that this production, combined with TPI's, brings the total domestic capacity in 1995 to beyond the existing demand, TPI believes anticipated growth in domestic demand will continue to exceed capacity in the foreseeable future.

A third polypropylene project is also underway, which will involve production of 100,000 tons per year of polypropylene at Balonan, due to start up at the end of 1995. This project, involving a joint venture between local company Tirtamas Majutama, BP Chemicals and Nissho Iwai, will involve a unit based on Himont's Spheripol process. Although BP says the product is primarily intended for the domestic market, TPI believes less than 50 percent of this production will compete with it on the local market.

Other licenses for polypropylene projects have been awarded by the government but Lochra believes no other domestic facilities are under development.

TPI points to the competitive advantage it gains from upstream integration with PT Chandra Asri and downstream with affiliate PT Argha Karya, which takes around eight percent of sales. Although TPI is currently entirely dependent on imported supplies of propylene feedstock, a $1.7 billion olefins complex which will produce 250,000 tons a year of polymer grade propylene is under construction at Chandra Asri, adjacent to the TPI plant and is due on-stream in mid 1995.

The polypropylene producers intend to source a sizable portion of its propylene requirements -- which will total 360,000-370,000 tons per year once the third train is on stream -- from Chandra Asri, which has the same principal shareholders as TPI: the Bimantara Group, Prajogo Pangestu of the Barito Pacific Group and the Napan Group. This should allow a reduction in raw material costs.

Imported propylene is currently subjected to a five percent import duty, although it is likely to increase substantially upon the commencement of Chandra Asri, which will be the first domestic propylene producer. However, under tariff reforms announced by the government in June 1994, TPI may be eligible for a two-year reduction in, or exemption from, the tariffs on propylene imported to meet expanded capacity from the third train.

TPI's own polypropylene selling prices are also protected by high tariffs on import. These currently amount to a 20 percent tariff and 20 percent surcharge, which totals $313 per ton in the year to June. As TPI's polypropylene prices generally reflect the dollar levels of imported polypropylene plus the effect of the tariff and duties, the tariff protection accounted to 36.5 percent of its sales in the first quarter this year. (vin)