knowledge sharing on indonesia petrochemical...
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Private & Confidential
May 14, 2013
Knowledge Sharing on Indonesia Petrochemical Outlook
By
Mr. Sermsak Sriyaphai EVP – EO-Based Performance Business Unit
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Indonesia petrochemical business outlook
Key opportunities and challenges of petrochemical development
Competitive edge of local producers
Conclusion
Outlines
3
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Indonesia petrochemical business outlook
Key opportunities and challenges of petrochemical development
Competitive edge of local producers
Conclusion
Outlines
4
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Indonesia At a Glance General Information
Population: 237 million (2012) Labor Force: 120 million (2012) Unemployment rate: 6.7% (2012)
Capital: Jakarta Major City: Jakarta, Bandung, Surabaya, Medan Surface Area: 1,904,443 sq km Geography: Archipelagic Language: Bahasa Indonesia (official) and English Religion: Islamic, Buddhism, Hinduism
Demographic distribution
Ethnic Group Population Pyramid
0 10 20 300102030
Male Female
Population (Millions)
10-19 Yr 20-29 Yr
30-39 Yr 40-49 Yr
50-59 Yr 60-69 Yr
70-79 Yr 80+ Yr
Economic Information
GDP: US$ 878 bn (2012) GDP per capita: US$ 3,592 (2012)
Real GDP (%yoy) Forecast
4.2 3.6 4.5 4.8 5.0 5.7 5.5
6.3
6.0 4.6
6.2 6.5 6.0 6.3 6.5 6.6 6.7 6.9
0
2
4
6
8
Inflation Rate (%)
9.3 12.5
9.9
5.2 6.4
17.1
6.6 6.0 11.1 2.8
7.0 3.8 5.0 5.1 4.8 4.5 4.2 4.0
0
5
10
15
20
FX Rate per USD
10,950
9,400 8,991 9,068
9,518 9,638 9,545
8,000
9,000
10,000
11,000
12,000
2008 2009 2010 2011 2012 2013 2014
Currency: Rupiah
Source: EIU,World Bank,UN Source: IMF, Bank Indonesia
Javanese 45%
Sundanese
14% Madurese 7%
Coastal Malays
8%
Others 26%
%
0 – 9 Yr
(i) Indonesia Petrochemical Business Outlook
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Demand of Petchem in Indonesia market is projected to grow 5% p.a. (i) Indonesia Petrochemical Business Outlook
1 Products include olefins, polyolefins, derivatives, aromatics and butadiene derivatives
Source: IHS
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Indonesia is short domestic production to meet its demand (i) Indonesia Petrochemical Business Outlook
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Pertamina and Chandra Asri are the two major players
with only one 600 KTA naphtha cracker of Chandra Asri
Downstream Midstream Upstream Feedstock
Naphtha
Conden-sate
LPG
Ethylene
Propylene
SM
EDC
HDPE
LLDPE
PS
PTA
PVC
PET
SBR
EO
PP
VCM
(600) (120)
(250)
(200 - swing)
(320)
(288)
(340)
Unit: KTA
(480)
(45)
Polytama (386)
Polyprima (400)
EG GT (200)
(200)
PIPI (48)
Siam Maspion (120) Statomer (87) Eastern Polymer (50)
(84)
Latexia
(640)
(400) (300)
(295)
(100) (80)
(20)
(216)
(138)
(20,000 bpd)
(58)
(460)
(280)
(211,400 bpd)
PX
Benzene
Mixed Xylenes
Light Naptha
Gas Fuel Oil
Heavy Aromati
c
(661) (1603)
(1009)
(654) (1015)
(578)
Major Players (marked once) Minor Players
(marked once)
(270)
(i) Indonesia Petrochemical Business Outlook
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0% 50% 100%
Asahimas
CAP
Indorama
Pertamina
Polychem
Polytama
Titan
TPPI
Ethylene HDPE LLDPELDPE MEG PVCPropylene PP BenzenePolystyrene Paraxylene Polyester/PET
Chandra Arsi (CAP) is the biggest producer w/ the most versatile portfolios Nevertheless, non of them are fully
integrated players
Import is required for most of the Petchem Products Only PVC and Benzene are surplus
Players’ Portfolios Analysis (i) Indonesia Petrochemical Business Outlook
-40%
-20%
0%
20%
40%
60%
80%
100%
Local Import Export
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SOUTH CHINA SEA PACIFIC OCEAN
SUMATRA
JAVA
JAVA OCEAN
KALIMANTAN
SULAWESI
PAPUA
SINGAPORE
Arun P. Brandan
Medan
Palembang
Dumai
Plaju
Balikpapan
Bontang
Jakarta
Balongan Cepu
Cilacap Bali
Banten
Tuban
Most of Petrochemical Players are also located in Java Island where end use industries are located
(i) Indonesia Petrochemical Business Outlook
SUMATRA
Players in Java
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Indonesia petrochemical business outlook
Key opportunities and challenges of petrochemical development
Competitive edge of local producers
Conclusion
Outlines
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Indonesia recently announced Master Plan for Economic Expansion (MP3EI) targets infrastructure investment to increase connectivity and efficiency
(ii) Key opportunities and challenges of petrochemical development
Indonesia’s Master Plan for Economic Development 2011-2025 completed
MP3EI has infrastructure investments increasing Indonesia’s attractiveness for investors
Context
A
B
Master Plan earmarks critical transportation improvement for Java which is focal region for Petchems
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
▪ Earmarked infrastructure will support: – Trade flows – Drivers of demand – Regulatory environment – Skill set of potential employees
▪ Focus on three distinct supports for economy: 1) Develop economic corridors 2) Strengthen connectivity domestically/internationally 3) Develop human resource and technical capacity - MP3EI Plan developed by Committee chaired by SBY
C
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.
Opportunity: Government Policy and Plan
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Indonesia Development supporting growth of Petrochemicals Industry (ii) Key opportunities and challenges of petrochemical development
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 related business
Sumatra Java Kalimantan Sulawesi Bali-NT Papua- Kep. Maluku
Steel
Food & Beverages
Textile
Transp. eqmt
Shipping
Palm oil
Coal
Oil and Gas
Opportunity: Government Policy and Plan
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Packaging, automotive are the key consumers of Petrochemical Products (ii) Key opportunities and challenges of petrochemical development
EO/EG EG
Olefins Butene-1 Propylene
Polymers LDPE LLDPE
HDPE
PET resins
Aroma-tics LAB
Mixed xylenes
HVS PU TDI SBR
MMA PMMA
PP
Phenolic resin
Packaging HPC Automotive Electronics & Electrical Textile Products
Construc-tion
High Medium Low
End-market use
SOURCE: SRI/ McKinsey Analysis
Opportunity: Growing of end use industry
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Packag-ing
Automo-tive
Structure # of companies
5.3
Location Percent
Key buying factors # of respondents
8
800
547 136
<$300k $300k-1mn $1-30mn >$30mn 1,491
9.4
22
71
10 16
x Projected annual growth 2010-15, Percent
8
<$30mn $30-100mn $100mn-1bn >$1bn 359
319
11 21
91
4 2
W Java C Java E Java Sumatera Others
Textile
20
55
<$10mn $10-50mn $50-100mn >$100mn 1,949
1,925
14
96
4 0 0 0
Home and personal care
5.5 <$10mn
$10-110mn
>$110mn 77
23
45
9 42
83
11 0
20
7
8
Service Supply
Quality
Price
156
9
Service Supply
Quality
Price
134
7
Service Supply
Quality
Price
234
8
Service Supply
Quality
Price
Market share
30%
10%
40% 20%
13%
82%
3% 3%
75%
5%
18% 2%
68%
2%
30%
Industry summary
Food and beverages industry consumes 60% approx. of packaging
95% of packaging is flexible 95% of converters are located in Java 90% of packaging is sold domestically
Auto industry is expected to grow at >9% Big players (>$100 mn revenues) control
more than 90% market share Almost all of Auto manufacturers are
located in Western part of Java
Textile industry is expected to continue growing at 20% in 2012-2013
The sector is nominated by small players Almost of all textile manufacturers are
located in Western part of Java
HPC is projected to grow at 6% in 2012-2015
Large size companies dominate HPC market
98% of HPC factories are located in Java
High growth rate is observed for most of the Petrochemical end use industry
(ii) Key opportunities and challenges of petrochemical development
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Summary of Opportunities VS Challenges (ii) Key opportunities and challenges of petrochemical development
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
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
Opportunities Challenges
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Indonesia petrochemical business outlook
Key opportunities and challenges of petrochemical development
Competitive edge of local producers
Conclusion
Outlines
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3 key competitive edges are identified (iii) Competitive edge of local producers
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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Indonesia petrochemical business outlook
Key opportunities and challenges of petrochemical development
Competitive edge of local producers
Conclusion
Outlines
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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.