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Developments of polypropylene (PP) resin industry in Indonesia.

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The price of polypropylene in the Asian markets has continued to climb to follow the trend of the price of its basic material propylene. The price of propylene rose with the soaring price of crude oil that exceed US$ 70 a barrel in August and September, 2006.

With the fact that there are few upstream petrochemical factories in ASEAN any change in the performance of one of the factories will have its effect on the prices of petrochemical products in this region.

In 2006, there was scarcity in the supply of propylene in Indonesia as two local producers Chandra Asri and Pertamina reduced their production as heir factories underwent regular maintenance.

As a result a number of polypropylene producers in Indonesia such as Tri Polyta were forced to increase imports which in turn caused a rise in the price of propylene in the Asian market.

Production Capacity Remains Unchanged.

Toward the end of 2006, the country's polypropylene industry operated almost at full capacity. Production totaled 535,750 tons or more than 80% of the total capacity.

The country's production capacity for polypropylene has remained unchanged for more than 10 years. The availability of basic material is a factor determining development of the industry.

Petrochemical industry is a strategic industry. It requires high technology and large investment. There are few companies having high level technology needed to develop petrochemical factory. Union Carbide Corp., Shell Chemical Co., BP Chemical are among the owners of the technology having involved in the development of petrochemical l industry in Indonesia.

In addition, petrochemical industry is capital intensive. The industry needs supporting facilities especially infrastructure that also require large investment. Those factors explain the causes of the sluggish growth of polypropylene industry in Indonesia.

Clusters of plastic industries

The association of olefin and plastic industries (INAplas) and the government have agreed to put upstream and downstream plastic industries in clusters depending on their relations with other industries.

There are three clusters in the plan:

* Banten cluster for olefin industry

* Tuban cluster for aromatic industry

* Bontang cluster for methane industry

So far the project already implemented is for the Banten cluster. Work has started to improve infrastructure including roads, railway, pipelines, waterworks, seaports, etc.

Supply of basic materials and oil fuel in competitive prices are also important factors. Development of the cluster is already underway for two years.

Secretary General of INAPlas Budi Susanto Sadiman said recently the initiative is expected to herald the second wave of petrochemical development in the country. Budi predicted that the strong growing demand at present will attract investment. Brisk development of petrochemical industry in a scale recorded in 1990-1995 will repeat itself in 2010 to 2015.

Polypropylene classification and tariff code

In Indonesian trade statistics, polypropylene is put in different tariff categories as follows: Polypropylene Resin (PP) Tariff Code (HS) PP resin Homopolymer : --In other liquid forms 39.02.10.190 --In granules 39.02.10.200 --In other forms 39.02.10.900 PP resin Copolymer : --In dispersion or solution 30.02.30.110 --In other liquid forms 39.02.30.190 --In Granules 39.02.30.200 --In other forms 39.02.30.900

Structure of Industry

Characteristics of Products

Polypropylene (PP) resin is an midstream petrochemical product, a derivative of olefin produced through polymerization of propylene. Propylene itself is produced from naphtha or natural gas through cracking process.

PP is used as feedstock for various plastic products with different characteristics by the process of crystallization, purity, inflexibility and melting points.

There are wide ranging products that can be produced from PP that some of the products could serve as substitutes of other polymer products such as polyethylene (PE) and timber, natural fibers and certain metals.

PP consists of three types--Propylene homopolymer, Random copolymer (propylene-ethylene) and Random polymer (propylene-ethylene-butene).

PP copolymer is formed from propylene with the addition of other monomer in small quantity (ethylene 1%-7%). This type of PP is tough used generally as feedstock for durable goods like electrical equipment, household equipment and car bodies. It is also used in other applications such as printing, films and lamination.

Addition of butene to PP could change the characteristics of the PP. The addition is generally made to provide coating to resist heat for PP film....