Harnessing petrochemical growth to bolster downstream strength

Jakarta (ANTARA) - As the foundation powering sectors from plastics to automotive, the petrochemical industry underpins much of modern manufacturing. As 2027 approaches, this "mother of all industries" faces challenges and vast new opportunities for expansion.

Stronger investment, feedstock diversification, and growing downstream demand are the basis for building a more competitive petrochemical future.

Director of the Upstream Chemical Industry at the Ministry of Industry Sri Bimo Pratomo noted that the petrochemical sector holds a strategic position within the manufacturing structure.

Because the sector supplies raw materials for nearly the entire processing industry chain, strengthening it directly shapes downstream industries' competitiveness.

Data from the Ministry of Industry shows that the national petrochemical industry’s installed capacity in 2026 reached roughly 2.1 million tons for polypropylene (PP), 1.99 million tons for polyethylene (PE), 1.3 million tons for propylene, and 2.13 million tons for ethylene.

However, utilization has yet to be fully optimized. Domestic capacity for polyolefin products such as PE and PP is projected to meet only around 60 to 66 percent of domestic demand in 2027.

This gap highlights an opportunity to boost output while drawing stronger investment into the national petrochemical sector.

Beyond production optimization challenges, the domestic industry must also navigate a global petrochemical supply glut.

This pressure is evident in high import volumes. In the first quarter of 2026, imports reached around 266,915 tons for polypropylene, 251,371 tons for polyethylene, 125,863 tons for polyethylene terephthalate (PET), and 376,240 tons for purified terephthalic acid (PTA).

Secretary-General of the Indonesian Olefin, Aromatic and Plastic Industry Association (Inaplas) Fajar Budiyono explained that import pressure is felt most significantly in basic commodity products that are highly price-sensitive.

Since these commodity products are commonly used for sacks, household appliances, and children's toys, buyers tend to opt for the most competitively priced raw materials.

In contrast, specialty-grade products have proven relatively more resilient due to their specific characteristics and niche market demand.

To ease these pressures, the government is pushing for feedstock diversification.

One key policy under active consideration is a zero-percent import duty on liquefied petroleum gas (LPG) used as petrochemical feedstock.

While the policy is set to remain in place temporarily until early 2027, the Ministry of Industry is conducting a study to propose extending it after recording higher industrial productivity during its implementation.

LPG can be used to partially replace naphtha, one of the primary feedstocks for producing petrochemical derivatives.

Diversification opportunities are also opening up through the utilization of domestic natural resources. One of the efforts is developing coal-to-chemical technology via coal gasification to produce methanol, which can then be processed into other petrochemical feedstocks, such as ethylene and propylene.

While this technology has advanced in China with increasingly competitive costs, its development in Indonesia still faces logistical hurdles, since much of the country's low-rank coal reserves are located in the interiors of Kalimantan and Sumatra, far from coastal industrial hubs.

Beyond coal, palm oil plantation waste in the form of empty fruit bunches has the potential to be processed into methanol as an alternative feedstock source.

Momentum for growth

Amid these challenges, the petrochemical industry's growth is reflected in the large planned investments.

The Ministry of Industry has recorded planned investments in the petroleum-based chemical industry, including the petrochemical sector, totaling US$52 billion.

Several strategic projects are underway, including STL Chemicals' ethane cracker in East Java, valued at US$540 million and targeted for commercialization in 2028.

Others include the US$754 million Chandra Asri Alkali project and Nippon Shokubai Indonesia's US$114 million superabsorbent polymer (SAP) plant.

In addition, development plans are in place for the TPPI Olefin Complex, with an estimated investment of US$8 billion to US$9 billion, and the Pertamina Rosneft project in Tuban, valued at around US$24 billion to US$25 billion.

These opportunities are increasingly relevant amid stronger national manufacturing performance.

Statistics Indonesia (BPS) recorded that the non-oil and gas processing industry grew 5.88 percent year-on-year in the third quarter of 2026, outpacing national economic growth of 5.47 percent.

The manufacturing sector's contribution to gross domestic product also rose to 19.22 percent, reaching Rp1,295.5 trillion (roughly US$71.04 billion).

This momentum is further reflected in Indonesia's Manufacturing Purchasing Managers' Index (PMI), which climbed to 54 in October 2026, its highest level since March 2024. Meanwhile, the Industrial Confidence Index rose to 53.77, the highest since February 2026.

Industry Minister Muhammad Sarmuji assessed that the rise in the three indicators highlights rising manufacturing activity, stronger confidence among industry players, and faster industrial growth.

This momentum, he said, must be maintained by guaranteeing raw material availability, competitive energy supplies, business certainty, higher productivity, and productive investment.

For the petrochemical sector, the government is also pushing the extension and expansion of the Special Natural Gas Price policy, evaluating quotas and surcharges, and seeking more competitively priced alternative gas supplies.

In addition, the government is preparing to tighten mandatory Indonesian National Standards (SNI), review import restrictions, implement trade remedies, and increase domestic product utilization to encourage fairer business competition.

Strengthening the petrochemical industry means bolstering national industrial strength from upstream to downstream.

Behind every production capacity investment and policy designed to drive the sector lie efforts to reduce imports, expand added value, and boost the competitiveness of domestic industries.

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