Jakarta. The Industry Ministry aims to reduce Indonesia’s petrochemical imports by $9.5 billion through large-scale investment projects that will strengthen upstream capacity and secure raw material supply for key downstream sectors.

The petrochemical industry plays a central role in supporting plastics, synthetic fibers, rubber, functional chemicals, textiles, and pharmaceuticals. But domestic production has long fallen short of demand, forcing heavy reliance on imports.

Wiwik Pudjiastuti, Director of Upstream Chemical Industry at the ministry’s Chemical, Pharmaceutical, and Textile Directorate, said major projects, including Chandra Asri Pacific 2, Lotte Chemical Indonesia, and TPPI Olefin Complex Tuban, are expected to drive Indonesia’s import-substitution efforts. “If these major projects operate at full capacity, Indonesia could save up to $9.5 billion in imports and significantly boost the country’s industrial competitiveness,” she said at a media gathering in Bogor, quoted on Sunday.

Wiwik said strengthening petrochemicals is not just about cutting imports, but about building long-term resilience across the manufacturing ecosystem. “Petrochemicals are the backbone of many industries. When our upstream segment is strong, the downstream industries grow sturdier and more competitive. That’s the foundation of true downstreaming,” she said.

Wide Supply Gaps Persist

Demand for petrochemical products continues to surge, but domestic capacity has yet to catch up. Wiwik noted that Indonesia faces “a stark imbalance” between supply and demand.

For olefins such as ethylene and propylene, plant utilization reaches around 75 percent, but shortages remain. Ethylene supply alone falls short by 800,000 tons. Aromatics face an even wider gap: p-xylene utilization stands at only 44 percent with a deficit of 500,000 tons, a key raw material for PTA used in polyester and PET.

Other major shortfalls include Mono Ethylene Glycol (MEG), with a 400,000-ton supply gap. MEG and p-xylene are essential for polyester-based textile manufacturing.

The plastics segment faces one of the largest deficits. From total demand of 4.879 million tons annually, domestic supply meets only 2.957 million tons, creating a 1.922-million-ton gap. Strong demand for polymers such as polyethylene (PE) and polypropylene (PP) has pushed import needs to $2.9 billion in 2024.

“As long as the supply-demand gap remains this wide, imports are unavoidable. But going forward, we must narrow this gap by building new capacity and integrating the value chain from upstream to downstream,” she said.

Strong Performance in 2025

Despite structural challenges, the Chemical, Pharmaceutical, and Textile (IKFT) sector continues to show resilience. In the third quarter of 2025, the sector expanded 5.92 percent, outpacing national economic growth. The chemical, pharmaceutical, and traditional medicine sub-sector surged 11.65 percent, reflecting strong demand for chemical raw materials.

The sector contributed 3.88 percent to national GDP. Exports from January to August reached $32.25 billion, nearly matching imports at $32.31 billion.

Investment momentum also remains solid, reaching Rp 142.15 trillion ($8.50 billion), a significant increase from last year. “This positive trend shows that chemicals, including petrochemicals, remain a fundamental pillar of Indonesia’s manufacturing sector,” Wiwik said.

Structural and Competitiveness Challenges

Wiwik outlined several structural bottlenecks hampering the industry’s growth. Key raw materials such as naphtha and LPG still depend heavily on imports, while integration between refineries and petrochemical plants remains weak, affecting production efficiency.

Petrochemical producers reliant on natural gas also face constraints due to policies on the Certain Natural Gas Price (HGBT) and Certain Industrial Gas Allocation (AGIT). Limited infrastructure and the absence of integrated chemical clusters further undermine competitiveness.

Trade agreements such as UAE-CEPA also intensify competition, exposing the domestic industry to low-cost petrochemical products from countries with abundant cheap feedstock.

“In this highly competitive global landscape, Indonesia can only compete if we secure strong and integrated upstream supply with efficient production costs,” she said.

Policy Roadmap

To address these challenges, the ministry is preparing long-term structural policies. These include improving access to raw materials, refining export-import rules, and proposing tariff exemptions for petrochemical feedstock.

The government also implements trade remedies such as antidumping duties and safeguard tariffs, while promoting competitiveness through HGBT implementation, Industry 4.0 adoption, and green industry standards.

Priorities include integrating upstream and downstream industries, drafting a roadmap for oil- and coal-based basic chemicals, and expanding domestic content requirements (TKDN). The ministry is also pushing the development of thematic industrial zones and integrated chemical clusters within special economic zones offering fiscal incentives and streamlined licensing.

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