19 December 2005 06:37 [Source: ICIS news]
By Steve Tan
SINGAPORE (ICIS news)--PT Petrokimia Nusantara Interindo (Peni), Indonesia's largest non-integrated polyethylene (PE) producer, has been put up for sale by Indonesian conglomerate Indika Group due to increasingly difficult market conditions, sources close to the company said on Monday.
Indika bought Peni for $50 million from its previous owners BP Chemicals, and Japanese trading houses Sumitomo Corp and Mitsui & Co, in 2003 after they struggled to keep operations afloat in an increasingly difficult environment.
But the situation has not improved very much, given that Peni has been struggling since to maintain regular operations due to the tight supply and high prices of feedstock ethylene.
"Indika cannot hold on to Peni anymore after two years and it is now up for sale," a source close to the company told ICIS news. The main problem, he added, was securing regular feedstock ethylene.
No timeline had yet been identified for the sale, but least two potential suitors from Southeast Asia have been identified and are said to be in negotiations with Indika. It is believed that a Middle Eastern player was also keen to invest. Peni officials could not be reached for comment.
Peni's 450,000 tonne/year plant at Merak, West Java, comprises three lines that produce high-density PE (hdPE) and linear-low density PE (lldPE). The plant is linked via pipeline to Indonesia's sole cracker operator Chandra Asri, but a term supply agreement ceased in 2004, said sources close to the company.
The company then entered into a tolling agreement earlier in 2005 with Malaysian trader Mitco, the trading arm of state-oil firm Petronas, to secure ethylene. Sources familiar with the agreement said Mitco was to supply ethylene to Peni in exchange for a share of the PE resin sales.
However, the ethylene supply from this arrangement has been sporadic due to tight supply and a bottleneck in cashflows. When the ethylene supply from this arrangement stopped, Peni was finally forced to cease production in early December, market sources said.Even though margin between ethylene and PE prices has gone above the usual $100-150/tonne at times in 2005, non integrated PE producers like Peni and the Philippines' JG summit have been unable to operate their plants above 50% of capacity consistently due to the tight supply of ethylene. PE prices managed to maintain most of their value in 2005, jumping over $1,050/tonne CFR due to strong regional growth.
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