Indonesian plastics processors may cut op rates

06 June 2008 07:50  [Source: ICIS news]

SINGAPORE (ICIS news)--Indonesia’s plastics processors are likely to cut their operating rates in June and July if polyolefins prices continue to rise, as current values are already cutting into their margins, local industry sources said on Friday.

It was becoming increasingly difficult for manufacturers in the different application sectors such as rigid and flexible packaging material, household wares and automobiles, to pass on the additional raw material costs to their customers, and hence resin demand could fall, said Yoesoef Santo, board member of the Indonesian Olefin and Plastic Industry Association.

The government’s move to reduce fuel subsidies towards the end of May had caused a hefty 30% increase in domestic fuel prices, and local buying power had weakened significantly as a result, Santo added.

"There are no signs of relief [from the rising cost pressure] so every local processor has to look at every aspect of their business to cut costs, from raw material, production to delivery," he said. 

A local polypropylene (PP) producer shared the same concern.

"We expect our sales in June to fall by around 20% as many of our processors are having difficulties in absorbing or passing on the raw material costs to their end-users," the PP producer said.

The PP producer had raised its offers this week to $1,970/tonne delivered (DEL) for injection and yarn grade PP and to $2,000/tonne delivered for IPP, $30/tonne higher from last week, to be in line with the regional price uptrend, local traders said.

However, a local polyethylene (PE) producer did not foresee a drastic fall in demand. Small processors may be forced to reduce operating rates due to the mounting cost pressure, but big processors were in a position to maintain operating rates at normal levels, the PE producer said.

Local resins demand would remain firm, as some of the big processors had recently placed orders for new processing machines, the producer added.

The producer said it had raised its prices by $30/tonne this week to $1,830/tonne DEL for film grade linear low density PE (LLDPE) and film and pipe grade high density PE (HDPE), to match rising ethylene feedstock costs, higher PE export prices and tight local supplies.

Local PE production had been restricted in the past weeks due to production issues and power shortages, the producer added.

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By: Chow Bee Lin
+65 6780 4359

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