Chemical Industry

2016
 This Sector Report was created by the EIBN unit at:

German-Indonesian Chamber of Industry and Commerce

http://www.ekonid.or.id

2016
www.eibn.org

2
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

2016
www.eibn.org

3
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.

2016
www.eibn.org

4
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.

2016
www.eibn.org

5
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 0.28 0.25 0.26 0.27 0.27
Footwear industry
5 Woods & of its products (except furniture) 0.76 0.7 0.7 0.72 0.67
6 Paper & Paper products; Repro of 0.96 0.86 0.78 0.8 0.76
Recorded
7 Chemical & Pharmaceutical & Botanical 1.59 1.67 1.65 1.7 1.81
Products
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
2016
www.eibn.org

6
 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 0.2 0.19 0.17 0.18 0.18
Machinery
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.

3
EU Desk at BKPM, Investing in Indonesia’s Chemicals Industry, An overview of opportunities,
capabilities and provisions. 2014
2016
www.eibn.org

7
 Table 2. FDI Realization based on Sectors 2009 – 2014

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

4 st
Kontan, Industri kosmetik ketergantungan bahan impor, 1 September 2015. Available at:
http://industri.kontan.co.id/news/industri-kosmetik-ketergantungan-bahan-impor
2016
www.eibn.org

8
 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
2016
www.eibn.org

9
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

Pharmacy, Cosmetic, and Health Equipment

2
Industry

3 Textile, Leather, Footwear, and Various Industry

MAINSTAY INDUSTRY
4 Transportation Industry

Information& Communication Technology (ICT)

5
Industry

6 Power Plant Industry

Capital Goods Industry, Components Industry,

7 SUPPORTING INDUSTRY
Auxiliary Material Industry, and Industrial Services

8 Agro-Based Upstream Industry

9 Basic Metal And Non-Metallic Mineral Industry UPSTREAM 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

2016
www.eibn.org

10
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.

2016
www.eibn.org

11
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
8
Trade Map, Trade statistics for international business development. Available at:
http://www.trademap.org/Index.aspx

2016
www.eibn.org

12
 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
2016
www.eibn.org

13
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
2016
www.eibn.org

14
 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
2016
www.eibn.org

15
 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
2016
www.eibn.org

16
 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
2016
www.eibn.org

17
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
2016
www.eibn.org

18
 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.

2016
www.eibn.org

19
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 th
SCB, Economic Intelligence Centre, Petrochemical business in Indonesia…a challenging opportunit, 8
Mei 2014. Available at: https://www.scbeic.com/en/detail/product/430
17
Ibid.
2016
www.eibn.org

20
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 Ethylene (600,000 MT), Propylene (320,000 MT), Mixed
Tbk 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 Butadiene

Indonesia

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

Indotama (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

2016
www.eibn.org

21
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

2016
www.eibn.org

22
 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.

2016
www.eibn.org

23
 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.
2016
www.eibn.org

24
 Table 6. Major Companies, Products, and Annual Capacity

Name of company Products (annual capacity, if existed)

PT Polytama Propindo Polypropylene (200,000 MT)

2 Ethyl Hexanol (135,000 MT), Iso Butanol (15,000 MT),

PT. Petro Oxo Nusantara
and Normal Butanol

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

320,000 DMT, Ethylene Diclhloride ( C2H4Cl2 ) with
PT Sulfindo Adiusaha 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.

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

Mitsubishi Chemical Indonesia
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
2016
www.eibn.org

25
 Table 7. National Capacity for Production of Plastic’s Raw Materials

2011 2012 2013 2014

No. INDUSTRY Utilisasi (%)
(1,000 ton) (1,000 ton) (1,000 ton) (1,000 ton)

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
2016
www.eibn.org

26
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

25
Source: Business Monitor International, Pharmaceutical and Healthcare Report

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/.
2016
www.eibn.org

27
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.

2016
www.eibn.org

28
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
2016
www.eibn.org

29
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.

2016
www.eibn.org

30
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/

2016
www.eibn.org

31
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

2016
www.eibn.org

32
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.

Media Partner:

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.

2016
www.eibn.org

33