JAKARTA. The trend of lower oil price has encouraged oil-derivative industries, such as petrochemical industries, to launch expansion. Recently, South Korean-based company PT Lotte Chemical Titan (FPNI) announced a plan to establish naphtha crackers factory in Krakatau Steel Industrial Zone in Cilegon.

The factory, which will produce the derivative product of naphtha will be the competitor for PT Chandra Asri Petrochemical Tbk.(TPIA) To date, Chandra Asri is the only company that has naphtha cracker factory in Indonesia.

According to the Director General of Chemical, Textile, and Miscellaneous Industries Achmad Sigit Dwiwahjono, Sunday (19/2) the lower oil price may drive investments in petrochemical industry in this period.

According to Sigit, the petrochemical industry has a profitable potential amid the decline in the price of oil, which is the raw material of petro chemical industry. Sigit added, the investment realization of Lotte Chemical by the end of this year will amount to US$ 3 billion-US$ 4 billion or equal to Rp 52 trillion-Rp 53 trillion.

The business expansion would increase the capacity of naphtha-based chemical products of Lotte Chemical to Rp 1.9 million tons per year. Naphta based chemical products of Lotte Chemical will consist of ethylene, polyethylene, polypropylene, benzene, toluene, and xylene (BTX) aromatics.

Those chemical materials will supply various downstream industries, such as plastic, textile, paint, and pharmacy industries. To date, Lotte Chemical has been relying on the imported ethylene raw materials, or ethylene produced by Chandra Asri.

However, Chandra Asri would allocate the ethylene products for its polypropylene factory. Therefore, the company is planning to terminate the sales of ethylene to its customers starting from 2019. On the other hand, Lotte Chemical would reduce the dependence on imported petrochemicals, mainly polyethylene, after the operation of the new naphtha cracker factory.

According to the Ministry of Industry, every year, the imports of chemical materials amount to US$ 5 billion. The additional productions of Lotte Chemical may reduce imports to US$ 1.5 billion in every year. “We are still importing 60% of polyethylene needs. The Lotte’s productions may reduce imports,” Sigit said.

However, Lotte Chemical will take about 4-5 years to establish the factory. In other words, the self-sufficiency in the chemical materials is unlikely to be realized in a short period of time. Therefore, Ministry of Industry will encourage the acceleration of factory construction by offering some incentives, such as tax holiday and tax allowance.

Huge market potentials

Meanwhile, Minister of Industry Airlangga Hartanto said that the project of Lotte Chemical might absorb as many as 9,000 employees. The number consists of 6,000 employees during construction stage and 3,000 employees during the operation stage, Airlangga added.

According to Director of PT Chandra Asri Petrochemical Tbk Suryandi, the demands for naphtha derivative products, mainly polypropylene in Indonesia are considerably high. Therefore, Chandra Asri does not worry of the competition in this business sector, as Indonesia has a high demand for naphtha derivative products. Suryandi added, Indonesia needs to have another naphtha cracker factory.

“I think, the market may still absorb another 1-2 million tons of Chandra Asri products,” Suryandi told KONTAN, Sunday (19/2). (Muhammad Farid/Translator)

Editor: Sanny Cicilia