Demand for plastics expected to increase by 50% by 2027

As a rapidly growing emerging-economy, Indonesia is demanding ever larger quantities of plastics. This applies in particular to plastics in primary form (for example as granules), which are further processed into countless everyday products in domestic industries. A large part of this has to be imported. In 2022, Indonesia imported primary plastics worth US$7.6 billion, the highest ever throughout the country’s history.  

Taking into account plastics in secondary form – for example simple plastic products such as pipes and hoses – the figure was almost $10 billion. Plastics and plastic products are one of the largest items in Indonesian import statistics. About a quarter of this comes from polypropylene and polyethylene, both of which have a similar composition and serve the same industries.  

Germany supplies process technology 

According to Indonesia’s import statistics, polyethylene and polypropylene have been delivered from Germany for just $8 to 11 million annually in recent years. However, German companies offer the process technology for producing both plastics. German technology is also used in Indonesia, for example in the packaging of the granules. German machines are also involved in their further processing: for example, in the molding of plastic items or the extrusion of films for food packaging. Both plastics are also used in large quantities in the automotive industry. 

New chemical complex planned for $5 billion 

Currently, Indonesia requires about 3.6 million tons of polypropylene and polyethylene annually. According to a study by market analysts Data Consult, demand is expected to increase by around 50 percent to 5.3 million tons by 2027. It should be noted that the Indonesian government has stated that it would prefer to reduce its dependency on imported plastics. A large chemical complex for the production of polypropylene and polyethylene by Chandra Asri in Cilegon will help do just that. The cost of the facility is estimated to be $5 billion. Completion was originally planned for 2025, but the company only acquired the land at the beginning of 2023. Therefore, the project will be delayed by several years. 

Imports mainly come from neighboring countries 

Only around 50 percent of the domestic demand for both plastics is covered by the country’s own production. They are manufactured in factories in West Java (mainly in the chemical cluster around Cilegon) and South Sumatra. The market leader is the Indonesian petrochemical company Chandra Asri. The archipelago gets the other half predominantly from the neighboring countries of Malaysia, Thailand, Vietnam and the trading center of Singapore. In general, Indonesia can produce simple standard goods itself, but more complicated products have to be imported.  

For polypropylene, domestic production capacities of 935,000 tons are considered to be around 85 percent utilized, according to Data Consult. In 2024, the expansion of Polytama Propindo's plant in Indramayu, West Java, will add 300,000 tons of new capacity. No further capacity is planned in the industry until 2027. There is a production capacity of 1.2 million tons of polyethylene, which should be utilized at 80 percent capacity. No further increases in capacity is in sight here until 2027. In view of the strong increase in demand, imports of both plastics will be necessary – on an even larger scale than before. 

Politics relies on import substitution 

Demand for plastics such as polyethylene and propylene in Indonesia is expected to continue to rise sharply beyond 2027. The archipelago has a significantly lower per capita plastic consumption than developed countries. At the same time, the economy is growing by around 5 percent annually. More and more people are moving to cities where plastic consumption is particularly high. There are counter movements among the urban middle class for less plastic because in many places such products cannot be disposed of or recycled properly. Overall, however, the signs point to strong growth in demand. 

However, the associated increase in imports is undesirable. The aim of Indonesia's economic policy is to cover as high a proportion of domestic demand as possible from its own production. However, Indonesia is far from this goal, particularly in the petrochemical sector, which provides the precursors to plastics. In 2022, imports of corresponding products amounted to $23.4 billion. With high world market prices for oil, this puts a considerable strain on the foreign trade balance of the net oil importer Indonesia. This dependency will not decrease so quickly since the planned construction and expansion of refineries is slow. 

The Indonesian planning authority Bappenas has already announced that, among other things, basic chemicals will be made a so-called priority industry for the long-term development plan RPJPN 2025 to 2045, which defines the archipelago's industrial strategy. The development and expansion of domestic production capacities in plastics production is likely to be an economic policy priority in the next two decades. 

Source: GTAI