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Chemical Industry

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This Sector Report was created by the EIBN unit at:

German-Indonesian Chamber of Industry and Commerce

http://www.ekonid.or.id

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Contents

Methodology ...................................................................................................................... 4

I. Current Context and the Indonesian Government’s Vision .............................................. 6

II. Chemical Trade ............................................................................................................ 12

2.1. Indonesia’s Imports of Chemical Products ......................................................... 12

2.2. Trade within ASEAN .......................................................................................... 13

2.3. Trade with the European Union.......................................................................... 16

III. Selected Chemical Industry Segments: Market Structure ............................................ 19

3.1 Petrochemical Industry ...................................................................................... 20

3.2 Plastics Industry ................................................................................................. 24

3.3 Pharmaceutical Industry..................................................................................... 26

IV. Main Challenges in Indonesia’s Chemical Industry ..................................................... 29

4.1 High Import Duty ................................................................................................ 29

4.2 Market Access ................................................................................................... 29

4.3 Infrastructure Demand ....................................................................................... 29

4.4 The Supply of Reliable Naphtha and Availability of Gas ..................................... 29

Trade Events in Indonesia ............................................................................................... 31

Relevant Contacts ............................................................................................................ 32

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Methodology

This Sector Brief aims to highlight the potential of selected segments in the Indonesian chemical

market, as an overview of business opportunities that can be found for European companies.

This study covers the characteristics of the chemical industry, the trade between Indonesia,

ASEAN and the EU, the present context of selected chemical-related industries, key players,

and existing challenges.

In the preparation of this report, EIBN made use of a variety of sources and methods, which are

briefly explained here. Information regarding the chemical industry was mainly obtained through

publicly available sources published by several entities.

Where the latest official data was not yet publicly available, the latest data on hand was used.

For example, where data and figures for 2014 and 2015 were not yet available, data and figures

from 2013 and 2014 were used. Any data included has been referenced in the report.

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Executive Summary

The purpose of the following report is to present an overview of the selected segments of the

Indonesian chemical sector and to highlight potential opportunities for European businesses.

The manufacturing industry has reached unprecedented growth, contributing 18.1% to the

country’s GDP in 2015 (compared to 17.8% in 2014) and is expected to reach 25% annually by

2025. Chemical and pharmaceutical products contributed 1.81% to that growth. The country

itself has abundant raw materials to support the chemical industry, such as its production of

Certified Palm Oil (CPO) and rubber, ranked first and second in the world respectively.

In order to fulfill the requirements of the chemical manufacturing industry, imports are required.

Imports of raw materials have been increasing since 2011, growing from US$ 5.1 million to US$

17.1 million in 2014. During 2015, the imports of chemical products represented 19.18% of

overall imports to Indonesia, rising from 15% in 2012.

The import of basic chemicals from 2010 to 2014 has increased by 23.90%, contributing 4.74%

to total imports. Chemicals such as; polymer products with 2.45%, polyethylene with 0.94%, and

polypropylene with 0.81% are imported in enormous quantities to meet the requirements of

major industries in Indonesia. These chemicals are considered to be very important and are

frequently used in the process of producing final goods.

The government has recognized this trend in the implementation of their vision of “Indonesia as

a strong industrial country”, by placing chemical-related industries, such as the agro, oil, gas,

and coal-based chemical industries as the upstream industry to develop related downstream

industries. The development of that upstream industry will take some considerable time as this

type of investment is usually capital-intensive. On the other hand, existing major chemical

companies have expanded or plan to expand their production capacities to cope with the

growing demand.

Nevertheless, there are a few challenges in Indonesia’s chemical industry which need to be

overcome, these include; high import duty, market access, infrastructure demand, the supply of

reliable Naphtha and the availability of gas. Thus, importation remains a feasible way to

accommodate the requirements of the manufacturing industry in Indonesia and EIBN hopes to

provide assistance in identifying local agents, as well as potential customers for chemical-

related products, as described in this sector report.

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I. Current Context and the Indonesian Government’s Vision

Indonesia has experienced steady economic growth between 2009 and 2014 with an average

growth of 6%. Due to the instability of the global economy in recent years, the economy grew

4.8% in 2015. However, this figure is still considerably better than the rest of the world (3.3%)

and ASEAN of (4.6%)1.

The global economic slowdown has led to the declining roles of several main industries in

Indonesia, such as oil and gas, commodities, agriculture, and mining. On the other hand, it has

increased the importance of the manufacturing industry, which has contributed 18.1% to the

country’s GDP in 2015 (compared to 17.8% in 2014).2 In Indonesia’s manufacturing industry,

leading sectors include food and beverages with a 5.61% contribution to GDP share,

transportation equipment with 1.91%, metal products, computer; electronic goods, and electrical

equipments with 1.96%, along with chemical and pharmaceutical products with 1.81%. The

manufacturing industry is expected to grow strongly in the coming years.

Table 1. Contribution of Manufacturing Industry to GDP Share

(In %)

No.

2011 2012 2013 2014* 2015**

1 Food and Beverage Industry 5.24 5.31 5.14 5.32 5.61

2 Tobacco Products 0.92 0.92 0.86 0.91 0.94

3 Textile & Wearing Apparel 1.38 1.35 1.36 1.32 1.21

4 Leather and Related Products and Footwear industry

0.28 0.25 0.26 0.27 0.27

5 Woods & of its products (except furniture) 0.76 0.7 0.7 0.72 0.67

6 Paper & Paper products; Repro of Recorded

0.96 0.86 0.78 0.8 0.76

7 Chemical & Pharmaceutical & Botanical Products

1.59 1.67 1.65 1.7 1.81

8 Rubber & plastic Products 0.92 0.89 0.8 0.76 0.74

9 Other Non-Metallic Mineral 0.71 0.73 0.73 0.73 0.72

10 Manufacture of Basic Metals 0.8 0.75 0.78 0.78 0.78

11 Computer, Optical product & Electrical 1.81 1.89 1.95 1.87 1.96

1 Statistics Indonesia sorted by Ministry of Industry and BKPM

2 Indonesia Investment, Manufacturing industry Indonesia contributes 18,1% to GDP, 23 February 2016.

Available at: http://www.indonesia-investments.com/news/todays-headlines/manufacturing-industry-

indonesia-contributes-18.1-to-gdp/item6527

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Equipment

12 Machinery & Equipment 0.3 0.29 0.27 0.31 0.32

13 Transport Equipment 1.98 1.93 2.02 1.96 1.91

14 Furniture 0.28 0.26 0.26 0.27 0.27

15 Other manufacture, repair & Industry of Machinery

0.2 0.19 0.17 0.18 0.18

Total 18.13 17.99 17.72 17.89 18.18

Source http://kemenperin.go.id/statistik/pdb_share.php

With 250 million inhabitants, Indonesia records a rapidly growing middle class of more than 140

million (the largest in South East Asia), a factor which makes Indonesia an interesting

investment destination. In addition, the country is home to a large number of consumer and

industrial goods manufacturers in need of chemical products for production purposes. The

country itself has abundant raw materials to support the chemical industry, such as its

production of CPO and rubber, ranked first and second globally3.

Investment in the Indonesian chemical industry itself has been on the rise, as stated by the

Indonesian Investment Coordinating Board (BKPM), constituting the largest contributor in value

to FDI inflows, valued at US$ 3.142 billion in 2013 (an increase of 13.43% from 2012), led by

the petrochemical segment. With the expected overall growth of the manufacturing sector,

estimated at 25% annually until 2025, the chemical industry’s contribution (now at 12.5%) will

most likely grow accordingly. Hence, it is expected that the demands on the chemical industry

will rise, a growth that can only be sustained through large direct investments in the sector,

which will accompany the growth of the manufacturing industry and consumption.

3EU Desk at BKPM, Investing in Indonesia’s Chemicals Industry, An overview of opportunities,

capabilities and provisions. 2014

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Table 2. FDI Realization based on Sectors 2009 – 2014

Source: BKPM, Indonesia Investment Outlook and Policy Development, 2014Thus, the manufacturing

industry in Indonesia will still rely on imported raw materials, including chemical products, the

source of the country’s trade imbalance. For example, 90% of the raw materials for the

cosmetics industry needs to be imported, comprised mostly of chemical mixtures for cosmetic

treatments4. Furthermore, imports of raw materials have been increasing since 2011, growing

from US$ 5.1 million to US$ 17.1 million in 2014.

4Kontan, Industri kosmetik ketergantungan bahan impor, 1

st September 2015. Available at:

http://industri.kontan.co.id/news/industri-kosmetik-ketergantungan-bahan-impor

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Figure 1. Share of Imports of Chemical Products over Total Imports (in %)

Source : Ministry of Industry, http://kemenperin.go.id/statistik/peran.php

The graphic above shows that imports of chemical products in 2015 represent 19.18% of overall

imports to Indonesia.

The import of basic chemicals from 2010 to 2014 has increased by 23.90%, contributing 4.74%

to total imports5. Chemicals such as; polymer products with 2.45% market share, polyethylene

with 0.94%, and polypropylene with 0.81% are imported in enormous quantities to meet the

requirements of major industries in Indonesia.These chemicals are considered to be very

important and are frequently used in the process of producing final goods.

The Government of Indonesia recognizes this complex matter and has established the National

Industry Development Masterplan (Rencana Induk Pembangunan Industri/RIPIN) 2015-20356,

through the Issuance of Government Regulation No.14/2015, with the vision of “Indonesia as a

strong industrial country”. This Masterplan serves as guidance for the Government and

industrial stakeholders in industrial planning and development for the next 20 years.

The above-mentioned Masterplan has set some qualitative targets for industrial development,

such as; reducing the ratio of raw material imports to GDP of non oil and gas industries from

43.1% in 2015, to 20% in 2035 and increasing the share of non oil and gas industry to GDP

5 Ministry of Industry, Peran kelompok, Available at :

http://www.kemenperin.go.id/statistik/peran_kelompok.php?kel=16&ekspor= 6 Ministry of Industry Republic of Indonesia, Industry Facts and Figure 2015

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from 21.2% in 2015 to 30% in 2015. The first phase (2015-2019) emphasizes the increase of

value-added industries, particularly the upstream oil-processing industry. The crucial

development of this value-added industry is important to provide a baseline for the supporting

industries and existing mainstay industries.

To achieve the goal of the National Industry Development Masterplan (Rencana Induk

Pembangunan Industri/RIPIN) 2015-2035, the Government has set up 10 priority industry

groups to be developed:

No Priority Industry Group Remarks

1 Food Industry

MAINSTAY INDUSTRY

2 Pharmacy, Cosmetic, and Health Equipment

Industry

3 Textile, Leather, Footwear, and Various Industry

4 Transportation Industry

5 Information& Communication Technology (ICT)

Industry

6 Power Plant Industry

7 Capital Goods Industry, Components Industry,

Auxiliary Material Industry, and Industrial Services SUPPORTING INDUSTRY

8 Agro-Based Upstream Industry

UPSTREAM INDUSTRY 9 Basic Metal And Non-Metallic Mineral Industry

10 Oil, Gas, And Coal Based Chemical Industry

In order to realize the vision of Indonesia as a strong industrial country, groundwork needs to be

laid out in order to increase its competitiveness, as described below. Currently, Indonesia ranks

56 out of 144 countries in regards to infrastructure preparedness (World Economic Forum) and

is fertile ground for foreign direct investment. The President of the Republic of Indonesia Joko

Widodo, has made a bold move by cutting subsidies on fuel, as it amounted 13% of

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Government spending budget in 2015, in order to enhance development of infrastructure,

education and healthcare.

Flowchart 1. Vision and Mission of Indonesia’s Industrial Development

Source : Masterplan of National Industry Development (Rencana Induk Pembangunan Industri/RIPIN) Year 2015-2035

The development of the chemical industry and related businesses (as part of the upstream

production), will take considerable time, as this type of investment is usually capital-intensive.

Presently, investment in oil, gas, and coal based chemical industries are still showing modest

growth in the country. Thus, importation is still viewed as the primary way to accommodate the

demand for chemical products from existing customers and industries in the country.

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II. Chemical Trade

2.1. Indonesia’s Imports of Chemical Products

The import trends of chemical products have increased since 2010, but there is no available

data showing the production of chemical products in Indonesia. In 2012, chemicals were the

second largest import category, making up 15% of overall imports7. Based on import data

provided by the International Trade Center8, all chemicals, including inorganic chemicals (HS

Code:28), organic chemicals (HS Code:29), pharmaceutical products (HS Code:30), fertilizers

(HS Code:31), miscellaneous chemical products (HS Code:38), and some plastic materials (HS

Code: 39), have experienced tremendous growth of more than 7% from 2011 until 2014.

During that time, the growth of chemical imports reached 11.87%. The highest growth was in

materials, under HS Code 29, with 14.35%, followed by fertilizers (14.14%). Furthermore,

miscellaneous chemical products experienced the lowest growth of 6.17%. The tremendous

growth is triggered by high import numbers in 2011, as fertilizers experienced a growth of

84.37%, plastic materials with 43.22%, inorganic chemicals with 34.92%, organic chemicals with

24.56%, miscellaneous chemical products with 15.31%, and pharmaceutical products with

7.61%.

The Indonesian Central Bureau of Statistics stated that the country’s total imports experienced a

30.69% growth in 2011. The Ministry of Industry identified the increasing import of considerably

dangerous chemicals, either legal or illegal, in that particular year as the cause of the rise in

chemical imports. By the end of 2011, the Ministry placed restrictions on the importation of 28

products under HS Codes: 28, 29, 30, and 38. Those products are the Lartas list (products

which are not allowed to be imported, or are restricted) and are required to be imported by

Registered Importers with a Certificate of Inspection. These requirements form a compulsory

part of the shipping documents.

Over the following three years, import of chemicals showed a more moderate rise. There was

even an abrupt reduction of imports in 2013 for products such as fertilizers (with -33.28%) and

inorganic chemicals (with -14.77%). One probable factor for that steep reduction was the tighter

control of import of those types of products by the Government, with the establishment of a new

regulation and the implementation of Indonesian National Standards. The fluctuating exchange

rate between the US Dollar and the Indonesian Rupiah that year might also be considered a

factor, since the exchange rate between those two currencies rose by 26%, starting from US $

1= IDR 9,628 to US $ 1= IDR 12,160 by the end of the year.

7 Statistics Indonesia sorted by Ministry of Industry and BKPM, 2012

8Trade Map, Trade statistics for international business development. Available at:

http://www.trademap.org/Index.aspx

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Figure 3. GDP Imported Value 2010 – 2014

Source : Trademap data

2.2. Trade within ASEAN

Asia, especially ASEAN, proved to be the most promising region, with high growth for chemical

industries compared to other regions9. Based on the report from AT Kearney in 2011, South and

East Asia will become the next target for production facilities and markets, as there is huge

potential within the region. The trade data within member countries of ASEAN has proved that

9 A.T. Kearney’s 2011 Chemical Customer Connectivity Index (C3X), Chemical manufacturers : The

search for sustainable growth. Available at: https://www.atkearney.com/chemicals/ideas-insights/c3x-

chemicals-study/-/asset_publisher/Lu6AKqB1XYae/content/chemical-manufacturers-the-search-for-

sustainable-

growth/10192?inheritRedirect=false&redirect=https%3A%2F%2Fwww.atkearney.com%2Fchemicals%2

Fideas-insights%2Fc3x-chemicals-

study%3Fp_p_id%3D101_INSTANCE_Lu6AKqB1XYae%26p_p_lifecycle%3D0%26p_p_state%3Dnor

mal%26p_p_mode%3Dview%26p_p_col_id%3Dcolumn-

2%26p_p_col_pos%3D2%26p_p_col_count%3D3

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there has been a significant growth of exports and imports amongst them, thus many chemical

producer’s investment plans might focus on this region.

Figure 4. Consumption and Production Development in different Regions (2011)

Source : A.T. Kearney Chemical Customer Connectivity (C3X) study, 2011

Since the beginning of 2016, the ASEAN Economic Community (AEC) was implemented across

10 member countries. The main objective of AEC is to establish a single market to boost

ASEAN economic competitiveness. This includes the reduction of tariffs to zero on most

products traded between member states, as well as the identification and removal of non-tariff

barriers, such as product characteristic requirements, rules of origin and customs surcharges.

Those measures are expected to free the flow of capital, goods and services, skilled labor, and

raw materials among ASEAN member countries.

Prior to the implementation of AEC, the trade within member countries of ASEAN took the

biggest role of any trading partner, as it reached 24%10 in 2014. While the trade between

ASEAN and China became the second major trading partner to ASEAN and EU as the third

largest trading partner taking 14.5% and 9.85% of the shares respectively. The implementation

of AEC will surely increase the trade between member countries in the near future and that will

encourage more interest in directing FDI into the region.

10 ASEAN Statistic. Available at: http://www.asean.org/storage/2016/01/statistic/table22_asof21Dec15.pdf

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Figure 5. Indonesia’s Major Trading partners

Source : ASEAN Statistics

Certain chemicals, especially those under HS Code 29 and 39, are considered among the top

10 commodities being traded within ASEAN countries, as their total shares reached 5.85% with

a total value of US$ 147,84 billion, in 2014 (a 1.25% raise from 2013). Considering Indonesia’s

13.99% outbound average annual total trade growth in the period 2007-2013 and the 37.76%

average growth of imports under HS Codes 29 and 39 in 2010-2014 (valued at US$ 3,256

billion), Indonesia will continue to procure those particular products from Singapore, Thailand,

and Malaysia, due to the geographical proximity, zero tariffs on imports and competitive pricing.

While exports of products with HS Code 29 and 39 to ASEAN member countries reached

25.38%, with Singapore, Malaysia, and the Philippines as the main markets. The total export of

these two products to other member countries of ASEAN in 2014 reached US $ 1,5 billion11.

Below are products with high volume of import to Indonesia in recent years:

1. HS Code: 29 = organic chemicals.

HS Code Description

2901 Acyclic hydrocarbons

2902 Cyclic hydrocarbons

2903 Halogenated derivatives of hydrocarbons

11 ASEAN.org , ASEAN Statistical Yearbook 2014. Available at:

http://www.asean.org/storage/images/2015/July/ASEAN-Yearbook/July%202015%20-

%20ASEAN%20Statistical%20Yearbook%202014.pdf

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2905 Acyclic hydrocarbons

2916 Unsaturated acyclic & cyclic monocarboxylic acid & anhydrides,

halides.

2917 Polycarboxylic acids, their anhydrides, halides etc & their derivative

2. HS Code: 39 = plastics and articles thereof.

HS Code Description

3901 Polymers of ethylene, in primary forms

3902 Polymers of propylene or of other olefins, in primary forms

3903 Polymers of styrene, in primary forms

3906 Acrylic polymers in primary forms

3907 Polyacetal,o polyether,epoxide resin, polycarbonate, etc, in primary

form

3921 Plates, sheets, film, foil and strip, of plastics, nes

2.3. Trade with the European Union

The EU chemical industry represents around 7% of the EU’s industrial production.12 As

described with the figure above, Asia, and especially ASEAN, is inevitably often viewed as a

lucrative destination for investment. The chemical and the pharmaceutical industry have led the

Top 10 for EU Investments in the region since 2010, and the AEC implementation may signify a

further increase for companies already established in ASEAN. Thus, a base in Indonesia,

strategically located and the ASEAN Community’s largest economy , may grant incoming

companies a competitive standing in the overall ASEAN market.

12 European commission, Chemicals. Available at :

http://ec.europa.eu/growth/sectors/chemicals/index_en.htm

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Figure 6. Top 10 Sectors for EU Investments by Sector: 2010- 2015

Source : BKPM

Even though the trade within ASEAN is viewed as more favorable when carried out by

Southeast Asian businesses, there are still some opportunities that can be grasped by

European players in the chemical industry. In fact, the development of the chemical industry in

ASEAN has not peaked just yet, and some materials and know-how are still not widely available

across the region.

Specifically regarding Indonesia, the country is still highly dependent on imports from EU

countries for products under HS Code: 28 (inorganic chemicals, precious metal compound, and

isotopes) and HS Code: 30 (pharmaceutical products). The reliance of Indonesia on EU imports

for these two products from 2010 until 2014 was pronounced, with a dependency rate on HS

Code 28 of 49.91%, and on HS Code: 30 of 52.70%13.

Imports of the two products have experienced moderate growth in 2010-2014. During this

period, inorganic chemicals enjoyed a 9.64% growth, while pharmaceutical products reached

10%. Despite the decline in imports of inorganic chemicals to an average of 10% for the last two

years, it is believed that the import of pharmaceutical products will experience positive growth in

the coming years14, given that Indonesia has been undergoing nation-wide restructuring of its

national healthcare system since 2014. Before then, Indonesia’s healthcare system was rated

as one of the poorest among ASEAN countries, a shortcoming tackled by the Government with

the introduction of a new national healthcare system in 2013, making healthcare accessible to

all citizens. Until 2015, more than 140 million Indonesian citizens had applied for the new

13 Ibid.pg 14

14 Ibid.pg 14

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Healthcare System (BPJS, Badan Penyelenggara Jaminan Sosial Kesehatan). This factor alone

is expected to have a massive impact on the import of pharmaceutical products, as the local

industry is not prepared to cope with a fast and potentially insulated rise in demand.

The imports of pharmaceutical products to Indonesia from EU countries are led by Germany

with a 12% share, followed by France (7.7%) and the UK (5.65%). This is understandable, as

the German pharamaceutical industry is a world-leader, the country is export-intensive

regarding this sector, and many related German companies have a longstanding presence in

Indonesia15. As for the import of organic chemicals from EU countries to Indonesia, Germany

has the largest share of trade (2.40%). However, other countries within the same region such as

Bulgaria and France have lower shares with 0.06%.

Below are the products with a high volume of import to Indonesia in recent years:

1. HS Code: 28 = inorganic chemicals, precious metal compound, and isotopes.

HS Code Description

2836 Carbonate;peroxocarbonate, commercial ammonium carbonate

2818 Aluminium oxide (incl artificial corundum); aluminium hydroxide

2803 Carbon (carbon blacks & other forms of carbon, nes)

2809 Diphosphorus pentaoxide; phosphoric acid and polyphosphoric

acids

2833 Sulphates; alums; peroxosulphates (persulphates)

2835 Phosphinates, phosphonates, phosphates & polyphosphates

hypophosphites

2. HS Code: 30 = pharmaceutical products.

HS Code Description

3004 Medicament mixtures (not 3002, 3005, 3006), put in dosage

15 Export Initiative for German Healthcare Industry, Pharmaceutical Industry. Available at:

https://www.exportinitiative-

gesundheitswirtschaft.de/EIG/Redaktion/EN/Standardartikel/pharmaceutical-%20industry.html

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3002 Human & animal blood; antisera, vaccines, toxins, micro-organism

cultu

3006 Pharmaceutical goods, specified sterile products sutures,

laminaria, b

3003 Medicament mixtures (not 3002, 3005, 3006) not in dosage

3005 Dressings packaged for medical use

III. Selected Chemical Industry Segments: Market Structure

The manufacturing structure of Indonesia has undergone a major transformation in recent

decades, gaining a new direction from a mostly import-substitution base, to being incresigly

export-oriented. Overall, Indonesian manufacturing industries have experienced positive growth

in recent years, except for coal and refined petroleum products. As shown in the table below,

the chemical sector and related industries are among those that experienced high growth since

2014, along with food and beverages, and transportation.

Table 3. Growth of manufacturing industries, 2011 – 2015

Source : Ministry of Industry, Republic of Indonesia

For the purposes of this Sector Brief, we will below elaborate on the present context of three selected chemical industry segments, which we believe can hold opportunities for EU companies in the Indoneisan

market: petrochemicals, polymers, and pharmacy.

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3.1 Petrochemical Industry

The petrochemical industry is the sector experiencing the highest growth in Indonesia, with

demand growing by approximately 2% per year16. This is correlated with the economic

expansion of Indonesia, since petrochemical derivative products are utilized in the production

process of plastic products, pharmaceuticals and textiles, amongst others. The economic

growth of Indonesia is still stable (4.2% in 201517), and is partly built on a massive rise in

comsumption and the shifting lifestyles of its society. In this context, the petrochemical industry

is a strategic segment which will continue to be pushed by growing demand.

As of 2012, most petrochemical products were imported, with Linear Alkyl Benzene (LAB) being

the only product with low dependability on imports. The number of imports may diminish in

coming years, due to expansion projects already announced by most major petrochemical

players in Indonesia.

Figure 7. Indonesia’s demand for Petrochemical Imports 2012

Source: EIC Analysis based on data from PTTGC.

The prospect of the petrochemical industry in Indonesia is quite promising, as the beginnings of

the local industry itself was only in the 1990’s, which explains the gaps in production supply and

the potential for these gaps to be filled by foreign exporters. The country’s major companies in

16 SCB, Economic Intelligence Centre, Petrochemical business in Indonesia…a challenging opportunit, 8

th

Mei 2014. Available at: https://www.scbeic.com/en/detail/product/430 17

Ibid.

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upstream-petrochemicals are; PT Asahimas Chemical, PT Pertamina Tbk, PT Chandra Asri

Petrochemical, and PT Petrokimia Gresik.

Table 4. Major Indonesian Petrochemical Market Players and Products

Name of company Products (annual capacity, if existed)

PT Chandra Asri Petrochemical

Tbk

Ethylene (600,000 MT), Propylene (320,000 MT), Mixed

C4 (220,000 MT), Py-gas (280,000 MT), Polyethylene

(336,000 MT), Polypropylene (480,000 MT), Styrene

Monomer (340,000 MT)

PT Petrokimia Butadiene

Indonesia

Butadiene

PT Pertamina Tbk Pure Terephthalic Acid, Benzene, Paraxylene, Polytam,

Propylene

PT Asahimas Chemical Caustic Soda/NaOH (200,000 MT, Ethylene

Dichloride/EDC, Chlorine/Cl2, Vinyl Chloride

Monomer/VCM, Polyvinyl Chloride /PVC(350,000 MT),

Hydrochloric Acid/HCI and Sodium Hypochlorite/NaCIO

PT Trans-Pacific Petrochemical

Indotama

Benzene (300,000 MT), Toluene (300,000 MT), P-Xylene

(370,000 MT), O-Xylene (100,000 MT)

PT Kaltim Methanol Industri Methanol (600,000 MT)

PT Kaltim Pasifik Amoniak Amoniak (692,000 MT)

PT BP Petrochemical Indonesia Purified Terephthalic Acid/PTA (530,000 MT)

PT Polychem Indonesia Tbk Ethylene Glycol (80,000 MT)

Although, these companies are producing their products in massive quantities, supply is still

insufficient to fulfill the demands of the entire country, as shown in the next table. Thus, import is

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the current approach used to cope with growing demands. The industry needs huge investment

to be able to meet demand.

Table 5. Upstream Petrochemical Industry Offers (in tons)

Commodity Description 2009 2010 2011 2012 2013*

Ethylene Production 512,780 580,400 500,325 517,100

Import 663,714 589,529 674,595 716,585 628,278

Export -

15,856 13,407 11,680

Supply 1,176,494 1,169,929 1,159,064 1,220,278 616,598

Propylene Production 489,925 528,560 429,250 380,400

Import 269,171 224,945 233,937 292,383 185,558

Export - 84,435 41,149 35,415 5,678

Supply 759,096 669,070 622,038 637,368 179,880

Butadiene Production - - - -

Import 35,220 42,328 49,109 42,768 39,661

Export - - 16,239 176,119 90,359

Supply 35,220 42,328 32,870 (133,351) (50,698)

Benzene Production 299,147 381,321 484,193 124,790

Import 163,183 152,794 150,091 212,959 213,241

Export 137,641 216,593 298,298 4,191 20,919

Supply 324,689 317,522 335,986 333,558 192,322

Toluene Production - - - -

Import 109,836 102,874 114,116 122,441 123,829

Export - - - - -

Supply 109,836 102,874 114,116 122,441 123,829

Xylene Production 518,500 726,520 700,000 272,500

Import 679,216 813,048 659,739 677,285 679,216

Export 148,810 423,416 567,107 27,586 111,422

Supply 1,048,906 1,116,152 792,632 922,199 567,794

Ammonia Production 5,381,138 5,275,681 5,139,948 5,005,018

Import 49,130 93,058 84,749 338,737 49,130

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Export 1,180,812 1,162,979 1,067,927 959,889 793,510

Supply 4,249,456 4,205,760 4,156,770 4,383,866 (744,380)

Methanol Production 684,623 496,222 509,709 456,856

Import 76,974 192,224 275,947 261,866 341,455

Export 495,100 430,788 476,837 438,742 486,818

Supply 266,497 257,658 308,819 279,980 (145,363)

Source: Ministry of Industry, Directorate of Basic Chemical Industry Note: In order to accommodate the increasing demand in the market, existing companies are planning to

expand their productions, inluding:

1. PT Asahimas Chemical will expand their outputs, which are: Caustic Soda from 500.000 ton to

700.000 ton/annum, vinyl chloride monomer (VCM) from 400.000 ton to 800.000 ton/annum, and

PVC from 300.000 ton to 550.000/annum.

2. PT Chandra Asri Petrochemical Tbk will alter their production capacity, as follows: Ethylene from

600.000 ton to 860.000 ton/annum, Propylene from 470.000 ton to 320.000 ton/annum, Mixed C4

from 315.000 ton to 220.000 ton/annum, and py-gas from 280.000 ton to 400.000 ton/annum.

3. PT BP Petrochemical Indonesia will expand their production capacity from 530,000 MT to

930,000 MT/annum.

Pertamina, the state-owned enterprise in the oil and gas industry, is the only major local

producer able to supply naphtha, a key raw material to petrochemical industry in Indonesia.

Based on a report from KPMG in 2014 (Asia Pacific’s Petrochemical Production Industry: A Tale

of a Contrasting Region), 90% of the cracker feedstock in Indonesia uses naphtha. However,

Pertamina itself utilizes the material for its own production of petrochemical products. Thus,

there is a supply shortage of naphtha for the industry. This has led to a high dependence on the

import of large quantities of naphtha noted by the Indonesian petrochemical industry players. In

addition, the aforementioned report also highlights a key fact: Indonesian petrochemical

companies (and in ASEAN overall) are highly susceptible to supply disruption, geopolitical

volatility, utility costs and price hikes in oil and gas. This exposure signifies high impacts on

petrochemical margins.

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Figure 8.Petrochemical Margin Calculation

Source: KPMG, Asia Pacific Petrochemical Industry, 2014. p.19

3.2 Plastics Industry

The usage of plastic in the daily activities of a country with a population of 250 million makes

Indonesia an interesting destination for investment and trade. On the other hand, plastic

consumption in Indonesia, according to the Indonesian Olefin, Aromatic and Plastic Association

(IINAPLAS), is still relatively low on a per-capita basis – at just over 17kg per year, compared to

around 35 kg in Malaysia and 40 kg in Thailand and Singapore18.

The consumption of polymer materials in plastic production will depend on the growth of related

industries, such as food and beverages, agriculture, automotive and electronics, and the

construction sector. These sectors have experienced massive growth for the last few years. In

2013, INAPLAS stated that the shares of plastic industry sales are as follows: food and

beverages with 70%, automotive and electronics with 7.5%, and the construction sector with

7.5%19. In early 2016, the association mentioned that the nation’s consumption in 2015 reached

3 million tonnes (a growth of 7% from 2015)20. INAPLAS also predicted that the demand for

plastic products will grow by 6% in 2016, reaching to 4.65 million tonnes, while prices will also

rise by 10%.

18 British Plastic Federation, Plastic Industry in Indonesia, BPF Report. Available at:

http://bpf.co.uk/exporters_toolbox/indonesia-report-2015.aspx 19

Jakarta Post, Strong demand keeps plastic industry growing. Available at:

http://www.thejakartapost.com/news/2013/01/23/strong-demand-keeps-plastic-industry-growing.html 20

Ibid.

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Table 6. Major Companies, Products, and Annual Capacity

Name of company Products (annual capacity, if existed)

PT Polytama Propindo Polypropylene (200,000 MT)

PT. Petro Oxo Nusantara 2 Ethyl Hexanol (135,000 MT), Iso Butanol (15,000 MT),

and Normal Butanol

PT Sulfindo Adiusaha

Caustic Soda (NaOH) & Chlorine (CL2) with total capacity:

320,000 DMT, Ethylene Diclhloride ( C2H4Cl2 ) with

capacity of 370,000 Ton, Vinyl Chloride Monomer (

C2H3Cl ) with capacity of 130,000 KMT, and Poly Vinyl

Chloride with capacity of 95,000 MT.

PT Basf Indonesia Inorganic Pigment Prep. : 2,000 Ton and others.

Mitsubishi Chemical Indonesia Purified Terephthalic Acid/PTA (700,000 MT) and

Polyethylene Terephthalate/PET (58,000 MT)

Source : From each companies websites.

Indonesia is home to several major companies producing raw materials for plastics production,

as shown in the table above, but it has not been able to cope with the growing local demand.

Local petrochemical companies, particularly PT Chandra Asri Petrochemical Tbk (TPIA), are

able to meet just two-thirds of the demand, with a capacity of 800,000 tonnes of ethylene per

year. Thus, local plastic makers are relying heavily on imports due to raw material shortages in

Indonesia. Currently, over 40% of the petrochemicals used in the plastics industry come from

abroad. Most of the nation’s plastics imports, comprised principally of propylene and

polyethylene, are sourced from neighboring countries, including Singapore, Malaysia and

Thailand, as well as from Europe, the US and the Middle East. The import of raw materials from

2011 – 2014 for the plastics industry reached US $ 6 billion/annum21.

21 Trade Map, Trade statistics for international business development. Available at:

http://www.trademap.org/Index.aspx

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Table 7. National Capacity for Production of Plastic’s Raw Materials

No. INDUSTRY 2011

(1,000 ton)

2012

(1,000 ton)

2013

(1,000 ton)

2014

(1,000 ton)

Utilisasi (%)

1 Ethylene 520,00 519,46 535,42 551,37 91,90

2 Propylene 666,33 681,78 698,55 715,32 82,70

3 P-xylene 632,51 689,34 772,73 856,13 107,55

4 Ethyl Benzene 387,06 404,60 418,03 431,46 107,87

5 Vinyl Chloride Monomer 599,99 626,23 652,89 679,55 97,08

6 Pure Terephtalic Acid 2.096,19 2.157,07 2.219,97 2.282,87 96,32

7 Polyethylene 479,10 510,21 539,26 568,32 75,78

8 Polipropylene 587,35 600,15 613,05 625,95 104,33

9 PVC Resin 542,74 562,27 582,61 602,94 96,01

Source: Directorate General for Manufacturing Based Industry 2014

With high dependence on imported raw materials and the often fluctuating currency rate

between the Indonesia Rupiah, the US Dollar and the Euro, interest from local producers in

recycling, and the use of recycled materials in their production, is rising22.

3.3 Pharmaceutical Industry

For reasons explained above (see p.15), Indonesia’s fast-growing pharmaceutical products

market makes it an invetably promising investment destination, added to the fact that it is the

largest in ASEAN (27% of total ASEAN market). The data below shows that the market for

pharmaceutical products has been growing since 2008. Based on figures provided by Ministry of

22 Ibid.pg 24

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Industry, the market for pharmaceutical products is projected to reach IDR 69.07 trillion (US$

5.2 billion)23 in 2016, and is expected to grow to IDR 102.05 trillion (US$ 7.7 billion) by 202024.

Figure 9. The Growth of the Pharmaceutical Market in Indonesia, 2008-2015

Source: Business Monitor International, Pharmaceutical and Healthcare Report

25

The market for pharmaceutical products in Indonesia is dominated local players, which have a

share of 70%.26 However, output is highly dependent on imported products. State-owned

enterprises in the pharmaceutical industry have considerably large market shares, but overall,

there is no single company monopolizing the market. While the Kalbe Group controls 14% share

of the total pharmaceutical market in 201027, it is still different companies that lead the market in

different types of pharmaceutical products. For instance, Dexa Medica is the top player in the

generic medicines market with 15.73% (2010 figures), putting Indofarma (12.69%), Kimia Farma

(8.6%), Hexphar, (4.72%) and Sanbe Farma (3.20%) at rankings two to five in this market.28

Nevertheless, in the prescription drug market and the drug-free sector, it is Kalbe Group that is

the top supplier in Indonesia.29

23 Ibid.pg 24

24 Ibid.pg 24

25 Media Pharma Indonesia, Realisasi pertumbuhan dunia farmasi 2014, 28 January 2015. Available at:

http://indonesia-pharmacommunity.blogspot.co.id/2015/01/realisasi-pertumbuhan-industri-farmasi.html 26

Pacific Bridge Medical (PBM), Indonesian Pharmaceutical Market 2014 Update, 29 January 2014.

Available at: http://www.pacificbridgemedical.com/publication/indonesian-pharmaceuticals-2014-

update/. 27

Dunia Industri, Struktur pasar industri farmasi Indonesia terfragmentasi, September 2015. Available at:

http://duniaindustri.com/struktur-pasar-industri-farmasi-indonesia-terfragmentasi/. 28

Dunia Industri, Struktur pasar industri farmasi Indonesia terfragmentasi, September 2015. Available at:

http://duniaindustri.com/struktur-pasar-industri-farmasi-indonesia-terfragmentasi/. 29

Dunia Industri, Struktur pasar industri farmasi Indonesia terfragmentasi, September 2015. Available at:

http://duniaindustri.com/struktur-pasar-industri-farmasi-indonesia-terfragmentasi/.

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As previously discussed, the implementation of the new healthcare system (BPJS) in Indonesia

will ensure that the market for pharmaceutical products will grow steadily in the near future. As

shown below, the annual budget for the healthcare sector has been increasing since 2011, with

annual growth of 8.3% until 2016. These developments confirm a likelihood that growth in this

segment will progress in the coming years, as more and more Indonesians access public health

and education, making Indonesia a promising market for pharmaceutical products and related

chemicals for production.

Figure 10. Annual Budget for Healthcare Sector (million US$)

Source: IMS Health and Ministry of Health

Even though there are many pharmaceutical producers in the country, the supply of raw

materials still depends on imports for as much as 90% of overall requirements. China is the

largest supplier of raw materials with 60% of the market share, followed by India (30%) and

Europe (10%). This shows how unsustainable the development of pharmaceutical industry in

Indonesia is, especially when it comes to local supply, given that supporting industries are not

well-developed. This dependance on imports has led several major pharmaceutical players to

develop their own production facilities for raw-materials: PT Kimia Farma produces

pharmaceutical salt; Kalbe Farma produes raw materials for biotechnology; Dexa Group and

Soho Group sythesize nature-based raw materials and cancer medicines; Bio Farma produces

flu vaccines. However, these good examples are not enough to supply the Indonesian industry

with the necessary quantity of raw materials.

Among the chemicals in high-demand by the Indonesian pharmaceutical industry are; Acetic

Anhydride, Methylchloride, Methylamine and Recorcinol.

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IV. Main Challenges in Indonesia’s Chemical Industry

The chemical industry in Indonesia has proved promising, due to the galloping growth of its

manufacturing industry and consumerist lifestyle. However, despite being a high potential trade

and investment destination, the country poses some challeges to market entry which need to be

carefully analyzed and understood by incoming EU businesses.

4.1 High Import Duty

All products, including imported production machinery from the EU, are subject to import duties

and taxes, in the absence of a free-trade agreement between the EU and Indonesia or ASEAN.

This may lead to uncompetitive prices when compared to other countries, such as China, Korea,

Japan, and India. The Government of Indonesia is planning to hasten the negotiations regarding

an upcoming Indonesia-EU Comprehensive Economic Partnership Agreement (EU-CEPA),

attempting to complete it in two years. However, at the time of writing no serious political

commitment had been made for the CEPA and negotiations have been stalled since 2012.

4.2 Market Access

As with many import-related matters, a degree of corruption and bureaucracy remain obstacles

for doing business in Indonesia. The chemical industry is no exception, as these issues affect all

sectors of the Indonesian economy. Therefore, companies must be aware of the risks and

difficulties they might face when investing and conducting business in Indonesia. Finding a local

partner is usually the only sure way to overcome these potential obstacles in optimal time.

4.3 Infrastructure Demand

Road transportation in Indonesia is still underdeveloped, which might disturb the delivery of

products to certain destinations. The Government of Indonesia is planning to speed up the

development of road and rail systems in Indonesia. Presently, new toll roads across the island

of Java – where economic activity is mostly concentrated – are being built, which will ensure

better mobility and more efficient logistics from one end to the other.

4.4 The Supply of Reliable Naphtha and Availability of Gas

Indonesia has been a net oil importer for some time and most of the supply of naphtha comes

from abroad. As discussed previously (see p.21), Pertamina is the only producer of naphta in

the country and its output is destined for its own petrochemical business. This leaves all the

other local companies vulnerable to price volatility, as they are highly dependent on imports.

In addition, there is also a shortage of gas supply as an energy source for manufacturing. The

supply is limited given that PT PGN, the state-owned enterprise controlling the gas industry, is

bound to several contractual agreements with foreign companies located outside of Indonesia

and much of the production is already allocated. The present price of industrial gas itself is

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relatively high: US$ 9-10/Million Metric British Thermal Unit (MMBTU). This may represent a

high expense for companies and may affect Indonesia’s capacity to accommodate investment in

its pharmaceutical industry. Compared to its neighbours, Indonesia’s industrial gas is expensive,

for instance Singapore buys its gas at US$4-5/MMBTU, Malaysia at US$4.47/MMBTU,

Philippines at US$5.43/MMBTU and Vietnam at US$7.5/MMBTU.

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Trade Events in Indonesia

IPEX, Indonesia Pharmaceutical Expo

5 – 8 October 2016, JI Expo Kemayoran – Jakarta, Indonesia

http://interpharma-indonesia.com/

The 12th International Exhibition of Pharmaceuticals, Ingredients, Contract manufacturing, Processing, Technology, Packaging machinery, Equipments and Services

Dye+Chem Indonesia International Expo

23 – 25 October 2016, JI Expo Kemayoran – Jakarta, Indonesia

http://www.cems-dyechem.com/dyechemindo/

The 27th international exhibition of all kinds of dye and fine & specialty chemicals.

INDO DYECHEM

27 – 30 April 2016, JI Expo Kemayoran – Jakarta, Indonesia

http://indointertex.com/indo-dyechem/

The 3rd Indonesia Textile Dyestuffs, Auxiliaries and Chemicals Exhibition.

Inagrichem, International Agricultural Chemicals, Fertilizer and Pesticide Exhibition

25 – 27 August 2016, JI Expo Kemayoran – Jakarta, Indonesia

http://www.inagrichem-exhibition.net/

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Relevant Contacts

Ministry of Industry

Address : M. I. Ridwan Rais Road, No. 5 Jakarta Pusat 10110 Phone : 62 (021) 3858171 Email : contact.us@kemendag.go.id Website : http://www.kemendag.go.id/en

Ministry of Trade of the Republic of Indonesia (Kementerian Perdagangan)

Address : M. I. RidwanRais Road, No. 5 Central Jakarta 1011 Phone : (021) 3858171 Email : contact.us@kemendag.go.id Website : www.kemendag.go.id Indonesia Investment Coordinating Board – BKPM Address : Jl. Jendral Gatot Subroto No. 44. Jakarta 12109 Phone : 62 (021)5292 1329-30/5292 1334-35 Fax :62 (021)5264211 Email : info@bkpm.go.id Website : www.bkpm.go.id/ The Inorganic Basic Chemicals Association of Indonesia (AKIDA) Address : Jl. Tanah Abang III No. 16 Jakarta 10160 Phone : 62 (021)3446459, 62(021)3446645 Fax :62 (021)3841994 Email :oki@asc.co.id Association of Iodized Salt Producer (APROGAKOB) Address : Perum. Green Vile Blok X No. 9 Jakarta Barat 11510 Phone : 62 (021) 56969223 Fax : 62 (021) 5605334 Email : cabangjakarta@sumateraco.com Indonesian Basic Organic Chemical Producers Association (APKODI) Address : Jl. Kayu Putih Vc/56, Pulomas Phone : 62 (021)4751705 Fax : 62 (021)4751706 Federation of the Indonesian Chemical Industry (FIKI) Address : Plaza Bona Indah Blok A2/A11 Lt. 2 Jl. Karang Tengah Raya Lebak Bulus Phone : 62 (021)75900809 Association of Indonesian Pharmaceutical (GP Farmasi) Address : Jl. Angkasa No. 20A Kemayoran, Jakarta 10620 Phone : 62 (021) 4203040, 62 (021)42801936 Fax : (021) 4203047-48 Website : www.gpfarmasi.org Email : buddynataatmadja@gmail.com, secretariat@gpfarmasi.org

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About EIBN

The EIBN is a partnership project between five European bilateral chambers of commerce in

Indonesia (BritCham, EKONID, EuroCham, IFCCI, INA) and two counterparts in Europe

(EUROCHAMBRES, CCI Barcelona). The EIBN’s aim is to promote Indonesia and ASEAN as

high potential trade and investment destinations among companies from allEU28 member

states – especially SMEs – and support them in their endeavor to explore the full market

potential in Indonesia. The project was initiated and co-founded by the EU.

Disclaimer

This publication has been produced with the financial assistance of the European Union. The

contents of this document are the sole responsibility of the EIBN and can under no

circumstances be regarded as reflecting the position of the European Union.

The figures in this report correspond to EIBN’s best estimate of value of the corresponding

variables. Although due care was taken in the preparation of this publication, EIBN makes no

warranty as to its accuracy or completeness and is not to be deemed responsible for any errors

or loss resulting from its use. Other organizations quoted herein are in no way responsible for

the content of the report or the consequences of its use.

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