Knowledge Sharing on

Indonesia Petrochemical Outlook

By
Mr. Sermsak Sriyaphai
EVP – EO-Based Performance Business Unit

May 14, 2013

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 Outlines
2

 Indonesia petrochemical business outlook

 Key opportunities and challenges of petrochemical

development

 Competitive edge of local producers

 Conclusion

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 Outlines
3

 Indonesia petrochemical business outlook

 Key opportunities and challenges of petrochemical

development

 Competitive edge of local producers

 Conclusion

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 (i) Indonesia Petrochemical Business Outlook 4
Indonesia At a Glance
General Information Source: EIU,World Bank,UN Economic Information Source: IMF, Bank Indonesia

GDP: US$ 878 bn (2012) GDP per capita: US$ 3,592 (2012)
Capital: Jakarta
Major City: Jakarta, Bandung, Surabaya, Medan
Real GDP (%yoy) Forecast
Surface Area: 1,904,443 sq km 6.9
8 6.3 6.2 6.5 6.0 6.3 6.5 6.6 6.7
Geography: Archipelagic 4.5 4.8 5.0
5.7 5.5
6 4.2
3.6 6.0
Language: Bahasa Indonesia (official) and English 4 4.6
Religion: Islamic, Buddhism, Hinduism 2
Population: 237 million (2012) 0

Labor Force: 120 million (2012)

Unemployment rate: 6.7% (2012)
Inflation Rate (%)
20 17.1
12.5
15 9.9
9.3
6.6 6.0 7.0
10 5.2 6.4
Demographic distribution 11.1
2.8 3.8 5.0 5.1 4.8 4.5 4.2 4.0
5
0
Ethnic Group Population Pyramid
% 80+ Yr
Male Female
70-79 Yr
Currency: Rupiah
60-69 Yr
Others 50-59 Yr
FX Rate per USD
26% 40-49 Yr
Javanese 30-39 Yr 12,000
45% 10,950
Coastal 20-29 Yr
Malays 11,000
10-19 Yr
8% 9,518 9,638 9,545
Sundanes 0 – 9 Yr 10,000 9,400
8,991 9,068
e
Madurese 14% 9,000
7% 30 20 10 0 10 20 30
Population (Millions) 8,000
2008 2009 2010 2011 2012 2013 2014

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 (i) Indonesia Petrochemical Business Outlook 5
Demand of Petchem in Indonesia market is projected to grow 5% p.a.

1 Products include olefins, polyolefins, derivatives, aromatics and butadiene derivatives

Source: IHS
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(i) Indonesia Petrochemical Business Outlook 6
Indonesia is short domestic production to meet its demand

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 (i) Indonesia Petrochemical Business Outlook 7
Pertamina and Chandra Asri are the two major players
with only one 600 KTA naphtha cracker of Chandra Asri

Feedstock Upstream Midstream Downstream

(120)
(600) HDPE
Naphth (250)
Ethylene
a
(340)
SM (200 - swing)
LLDPE
(211,400 bpd) (200)
(640)
(270) EDC
(20,000 bpd) PIPI (48)
(295) PS
Light (58)
PX
Naptha VCM (400)
(300)
(661) (1603) PVC
Conden (100)
-sate Benzen Gas (80)
EO (20) Siam Maspion (120)
e Fuel Oil
Statomer (87)
(578) (1009) Eastern Polymer (50)
Heavy GT (200)
Mixed EG
Aromati (84)
Xylenes (216)
PET
c (280)
(1015) (654)
LPG
Polyprima (400)
PTA
(460) SBR (138)
Latexia

(320)
Propylen (480)
e PP
(288) (45)
Polytama (386)

Major Players Unit: KTA

(marked once) Minor Players
(marked once)

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 (i) Indonesia Petrochemical Business Outlook 8
Players’ Portfolios Analysis
 Chandra Arsi (CAP) is the biggest  Import is required for most of the
producer w/ the most versatile portfolios Petchem Products
 Nevertheless, non of them are fully  Only PVC and Benzene are surplus
integrated players
100%
TPPI

Titan 80%

Polytama 60%

Polychem 40%

Pertamina
20%

Indorama
0%
CAP
-20%
Asahimas
-40%
0% 50% 100%
Ethylene HDPE LLDPE Local Import Export
LDPE MEG PVC
Propylene PP Benzene
Polystyrene Paraxylene Polyester/PET

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 (i) Indonesia Petrochemical Business Outlook 9
Most of Petrochemical Players are also located in Java Island
where end use industries are located

SOUTH CHINA SEA PACIFIC OCEAN

Arun
P. Brandan

Medan

SUMATRA
Bontang
Dumai SINGAPORE
Palembang Balikpapan

KALIMANTAN
SUMATRA

SULAWESI
Plaju
PAPUA

JAVA OCEAN
Jakarta
Banten Balongan
Cepu
JAVA
Cilacap Bali

Tuban

Players in Java

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 Outlines
10

 Indonesia petrochemical business outlook

 Key opportunities and challenges of petrochemical

development

 Competitive edge of local producers

 Conclusion

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 (ii) Key opportunities and challenges of petrochemical development 11
Indonesia recently announced Master Plan for Economic Expansion (MP3EI)
targets infrastructure investment to increase connectivity and efficiency
Opportunity: Government Policy and Plan

Phase 1 (2011-2015) MP3EI Objectives:

• At the national level: Review/revise cross sector regulations and streamlining permit applications
related to spatial management, labor, taxation, and the ease of capital investment

• At the local level: Review/revise regulation and permit concerning the mineral and coal, forestry,
and transportation (railways, shipping, aviation) sectors, as well as basic infrastructure.

Context

A Indonesia’s Master Plan

▪ Focus on three distinct supports for economy:
for Economic 1) Develop economic corridors
Development 2011-2025 2) Strengthen connectivity domestically/internationally
completed 3) Develop human resource and technical capacity
- MP3EI Plan developed by Committee chaired by SBY

B ▪ Earmarked infrastructure will support:

MP3EI has infrastructure
investments increasing
Indonesia’s attractiveness
for investors
Master Plan earmarks
C
critical transportation
improvement for Java
which is focal region for
Petchems
– Trade flows
– Drivers of demand
– Regulatory environment
– Skill set of potential employees
 Java prioritized for petrochemicals development as it has
3 new refinery projects in the next 5 years allowing for
multiple expansion projects.
 New transportation investments will support products
trade flows
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 (ii) Key opportunities and challenges of petrochemical development 12
Indonesia Development supporting growth of Petrochemicals Industry

Opportunity: Government Policy and Plan

Development of Six Economic Corridors
• Indonesia
Economy
focuses on
22 main
economic
activities
across 6
corridors
• Each corridor
has its core
strengths and
will focus on
development
of those
cores

Petchem Sumatra Java Kalimantan Sulawesi Bali-NT Papua- Kep.

related Maluku
business
Steel
Food & Beverages
Textile
Transp. eqmt
Shipping
Palm oil
Coal
Oil and Gas
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 (ii) Key opportunities and challenges of petrochemical development 13
Packaging, automotive are the key consumers of Petrochemical Products
End-market use
Opportunity: Growing of end use industry High
Medium
Low
Construc- Electronics
Products Packaging Automotive Textile HPC tion & Electrical
Propylene
Olefins
Butene-1
HDPE
LDPE
Polymers
LLDPE
PET resins
EO/EG EG
PP
MMA
PMMA
HVS PU
TDI
SBR
Phenolic
resin
Mixed
Aroma- xylenes
tics
LAB

SOURCE: SRI/ McKinsey Analysis

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 (ii) Key opportunities and challenges of petrochemical development 14
High growth rate is observed for most of the Petrochemical end use industry
Others E Java W Java Sumatera C Java
x Projected
Structure Market Location Key buying factors Industry summary
annual growth
2010-15,
# of companies share Percent # of respondents
Percent 2
1,491 >$30mn 30% 8  Food and beverages industry consumes
8 136 2 Price
$1-30mn 40% 60% approx. of packaging
547 10 16 Quality 7
Packag-  95% of packaging is flexible
$300k-1mn 20%
ing
71 Supply 0  95% of converters are located in Java
800 <$300k 10%  90% of packaging is sold domestically
5.3 Service 2

359 >$1bn 75%

8 4 2 Price 7  Auto industry is expected to grow at >9%
21
11 $100mn-1bn 18% Quality 4  Big players (>$100 mn revenues) control
Automo-
$30-100mn 2% more than 90% market share
tive 319 91 Supply 3  Almost all of Auto manufacturers are
9.4 <$30mn 5% located in Western part of Java
Service 1

5 1,949 >$100mn 13% 0  Textile industry is expected to continue

14 4 0 0 Price 9
5 $50-100mn 3% growing at 20% in 2012-2013
Quality 6  The sector is nominated by small players
Textile 1,925 $10-50mn 3% 96
Supply 5  Almost of all textile manufacturers are
<$10mn 82% located in Western part of Java
20 Service 1

77 0
9 >$110mn 68% 11 2 Price 8  HPC is projected to grow at 6% in 2012-
Home and 4 Quality 4 2015
personal 45 $10-110mn 30%  Large size companies dominate HPC
care 83 Supply 3 market
5.5 23 <$10mn 2% Service 2  98% of HPC factories are located in Java

SOURCE: National Bureau of Statistics; EMIS; Survey of chemical producers Nov 2011
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 (ii) Key opportunities and challenges of petrochemical development
Summary of Opportunities VS Challenges
Opportunities
 Rapid growth of Petrochemical
demand in Indonesia:
 Growing population
 Expansion of end use industry
 Increase of FDI
 Indonesia shall remain as a net
importer of Petrochemical on long
term projection
 Positive government policy:
 Infrastructure dev’lt plan
 Tax exemption of 5-10 years for
Petrochemical investment
 Abundant of natural resources (oil &
gas, coal) in Indonesia
15
Challenges
 High cost naphtha base
 Less synergy among plants are
observed; cost competitiveness issue
 The mature industrial estate are fully
occupied limiting expansion
opportunity
 Country fundamental challenges:
 Political issues/economics risk
 Infrastructure is not fully
developed
 Labor law / labor union issues
 Global climate change; rising sea
levels, rising air temperatures,
drought and flood, earthqauke
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 Outlines
16

 Indonesia petrochemical business outlook

 Key opportunities and challenges of petrochemical

development

 Competitive edge of local producers

 Conclusion

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(iii) Competitive edge of local producers 17
3 key competitive edges are identified

Freight saving
 Freight rate from the SEA country to Indonesia is in the
range of $15-$20 excluding clearing and handling cost

Accessibility to direct customers

 End market especially plastics converters are highly
fragmented, therefore, foreign producers have distributors/
agents
 While local producers has a better position to handle the
transaction directly

Imported tax advantages

 No imported tax applied within ASEAN countries
 However, 10-15% are applied for ME producers depend
upon the products

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 Outlines
18

 Indonesia petrochemical business outlook

 Key opportunities and challenges of petrochemical

development

 Competitive edge of local producers

 Conclusion

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 19
Conclusion
 Promising petrochemical demand is observed in Indonesia due to
several factors i.e. growing of population, expansion of end use
industries.

 As far as 2025 projection, Indonesia is still be a net importer of

Petrochemical products.

 Domestic players has a competitive position to access to direct

customers due to very fragmented market structure, import tax barrier
and freight cost saving.

 In addition to high market growth, key opportunities of Petrochemical

business in Indonesia are abundant of natural oil and gas feedstock,
and support from the government i.e. infrastructure/ logistics system
development and investment incentives.

 While the challenges could be overcome by creating synergy through

fully integrated upstream and downstream complex as well as
implementation of operational excellence.
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