18 June 2008 07:11 [Source: ICIS news]
SINGAPORE (ICIS news)--New capacities that will come online in the Middle East in 2009 may initially target bigger markets like China and Europe and Indonesian producers need not worry about any impending "flood", said market watchers and analysts on Wednesday.
The Association of Indonesian Plastic and Olefin Industries (INAplas) had recently estimated that the huge influx of polyolefins expected from the Middle East would "flood" the Indonesian market, potentially harming the national petrochemical market.
INAplas also planned to ask the government to desist from reducing the nation’s Most Favoured Nation (MFN) duty from 10% to 7.5% to maintain domestic petrochemical market stability.
However, analysts believed that the situation was probably not as dire as INAplas made it out to be.
"There will be moderation in demand such that there is going to be excess. But it is not necessary that they will flood the market. Perhaps the statement by the Association was exaggerated," said an analyst in response to the INAplas comments.
"Spare capacities are going to be rampant, prices are more likely to go down than up, I think it’s going to be a matter of which geographical regions can fulfil supplies," he added.
"The inclination to not reducing MFN duty by the Association is an instinctive move to protect the domestic industry. But this step might be one of backwardation and contrary to free trade," he said.
The new capacities from the Middle East would most likely go into all regions including China, Europe, Africa, Middle East, south Asia and southeast Asia and hence would not affect any one particular market, said another market watcher.
"Everyone is worried about the Middle East produce. Not just Indonesia," he said adding that the initial impact of the increased supplies could be felt as early as the third quarter of 2008.
The ICIS plants and projects database estimates that 57.09m tonnes/year of ethylene capacity will start-up in 2008-12 and the Middle East will account for 24.76m tonnes/year or over 43%, of this volume.
Domestic producers however, did not seem too worried about this "impending flood" of materials.
The influx of Middle East materials should not be a major concern to local polyolefins producers at least in the short-term because Indonesia was unlikely to be a priority market for Middle East producers, a source at Indonesian major, Chandra Asri said.
"The Middle East producers are likely to first target other markets such as China and Europe which are bigger in terms of volume, and easier to penetrate in terms of logistics and custom clearance before coming to Indonesia," he said, adding that local custom clearance was time consuming.
Chandra Asri, Indonesia’s sole cracker operator runs a 200,000 tonne/year linear low density polyethylene/high density polyethylene (LLDPE/HDPE) swing plant and a 100,000 tonne/year HDPE line at Anyer, West Java.
"Since 1996, the petrochemical industry of Indonesia has not received any new investments. This seemingly protectionism measure of asking the government not to reduce MFN duty is to encourage investment inflows into our domestic markets," said Budi Susanto Sadiman INAplas secretary general.
INAplas was already in discussions with the authorities for "flexible tariffs" and talks It should be completed between September and October, he added, declining to reveal details of the discussions.
The association had previously lobbied for higher tariffs citing the nation’s unfair tariff policies that had allowed huge volumes of imported polymers in 2001.Chow Bee Lin has contributed to this article
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