News Room - Business/Economics

Posted on 28 Jul 2008

Packaging industry hit by raw material shortage (Indonesia)

The country's packaging industry, which boasts revenues of Rp 20 trillion (US$2.18 billion) a year, is suffering from low imports and disrupted local supply due to power cuts, associations say. 

More than one half of all packaging used in Indonesia is plastic-based, a quarter is paper-based, followed by metal and glass. More than 70 percent of packaging materials are used for food and drinks.

The industry is currently suffering from a shortage of the raw material polypropylene (PP), which is used in plastic-based packaging material, said Ariana Susanti, director of business development at the Indonesia Packaging Federation.

"Demand is actually there because people still need to eat and drink. But the sizes of the packages are getting smaller to suit people's lower purchasing power. Sachet-type packaging is very popular," she told The Jakarta Post this week.

"But we cannot produce enough because raw materials are scarce," she said.

In response to a weakened public purchasing power, businesses have begun to produce high-end packaging materials that do not use the raw material PP, she said.

Manufacturers unable to switch away from PP-based products must wait out the supply draught, she added.

The industry consumes 850,000 tons of PP every year, 750,000 tons of which is produced locally by three petrochemical companies. The remainder is imported mainly from ASEAN, Middle Eastern and European counties.

Supply in the country has been hit by low imports due to a global decline in PP production, as well as disrupted local production, which has been crippled by power cuts over the past three months, said Budi Sayanto, secretary general of the Indonesian Olefin and Plastic Industry Association.

"Even after a short power cut imposed by power company PLN, the factory needs four to five days to readjust, and to test machinery to resume full capacity," he said.

Domestic production was disrupted for 10 days in May and five days in June, causing deliveries to be backed up by 45 days.

However, Budi said he expected supply to return to normal soon as the power shortage had been temporarily solved by a new ministerial decree demanding that industries reschedule their working hours.

Petrochemical factories, which must function 24-hours a day, are exempt from the decree.

Budi said with the government's backing, the local industry would resist competition from Middle Eastern countries that have started producing PP from natural gas, rather than oil.

"We are using much more expensive oil, so our costs will be higher. So far our price is still competitive, but the government must keep the import tariff for PP at its current level and ensure electricity supply," he said.

Indonesia imposes a 5 percent tariff on imports from ASEAN-member countries and a 10 percent tariff on imports from all other countries.

"This is relatively low compared to other ASEAN countries. They set tariffs of 12.5 to 16 percent," said Budi.

Prices of plastics have increased 40 percent this year compared to last year, Ariana said.

Prices of raw materials used to make plastic have doubled in the last year, matching a similar rise in oil prices, which have jumped from $60 to around $140 in the past twelve months.