Domestic PE market continues inching higher in Indonesia, but demand drags

While most Indonesian buyers were expecting domestic PE market to have reached the peak as the Ramadan season draws near, prices made a surprised up-turn after a brief break in early May. CommoPlast data suggests approximate $40/ton hike in HDPE film offers while LLDPE film increased $20/ton on an average since the second week of May.

Tight supply definitely plays an important role in steering the uptrend since late March; however, the latest adjustment is mainly driven by the depreciation of the Indonesian Rupiah against the US dollar, market sources said.

Demand was healthy in local Indonesia throughout April and May as converter push 100% operating rate in order to fulfil Ramadan orders. Sentiment ebbs considerably this week on the fact that market is entering holiday mood. “Besides, we have comfortable inventories until early August and prefer to wait for new end product orders before making fresh buy,” a flexible packaging converter informed.

Apparently, the post-Ramadan market outlook remains cloudy to many converters in the country, who are struggling to transfer higher raw material costs to end products. We received new offers for LLDPE film from a local supplier at IDR19,500,000/ton ($1404/ton) without VAT, FD Indonesia, cash equivalent said, “We plan to only replenish inventories after the holidays. More import cargoes would arrive in the near term, which might potentially ease the local tightness to a certain extent. Anyway, we have not concluded a healthy number of end product orders.”

The surge in local prices has driven many buyers to import market as the Government Borne Import Duty (BMTDP) scheme renewed. This trend is set to persist in the coming months if domestic supply remains tight.

On the other side of the market, local LLDPE film supply might not improve anytime so soon after both major PE producers in the country unexpectedly shutdown LLDPE production earlier this week due to unspecified technical issues. The restart date is unclear for now.

Market players are still juggling the potential impact of such event on the local market in July. There is a jitter among buyers, however, little urge to proceed with the immediate booking, especially among BMTDP holders. “China demand for LLDPE film is weak and would this market continue to see softening trend, we have an opportunity to source more competitive cargoes from import market,” another buyer added.