Local PE supply remains tight in Indonesia, distribution market traded at premium

Domestic supply for PE in Indonesia has been tightening over the past several weeks as stronger ethylene costs forced non-integrated producer in the country to cut operating rate to protect profit margins. As a result, local suppliers have been constantly implemented increases on PE parcels, in spite of slower buying interest.

This week, a major local producer lifted PE prices by $30/ton week on week, bring latest prices to $1280/ton for LLDPE film and $1290/ton for HDPE film, all based on FD Indonesia, cash term. “The producer has reduced PE operation rate to 80% this week while planning to increase contract prices by as much as 30% from last month. Many small-scale converters are forced to reduce run rate too as end product businesses are not very strong,” a trader reported.

Meanwhile, both LLDPE and HDPE film cargoes offered in the distribution market is about IDR150,000-200,000/ton ($11-15/ton) higher than the producer’s price list. Another trader added, “Availability for HDPE film is especially tight. We do not think the supply condition could improve anytime so soon, which means that market could be firmer for longer. With both domestic producers have cut fulfilment for contracted cargoes, buyers shall have to source material from the distribution market.”

After eight straight increments since late July, Indonesian buyers are becoming less active in making replenishment. Converters are expecting a slow down in the rate of price hike as resistance build up. “Just that, temporary we are not seeing any possible downward adjustment, hence we might still need to source hand to mouth at high price level,” a flexible packaging manufacturer commented.