Global Petrochemical Glut Puts Pressure on Indonesian Producers and Investment
Low-priced petrochemical imports, especially from China, threaten to lower Indonesian factories' utilization rates and discourage investment, even as the country needs more capacity to meet demand for several products.
China leads expansion as prices weaken
China is the main driver of global petrochemical capacity additions over 2026-2029, according to Sri Bimo Pratomo, director of downstream chemical industry at Indonesia's Ministry of Industry. Speaking at the "Petrochemical Industry Outlook 2027" discussion in Sentul, Bogor, West Java, on November 6, 2026, he said expansion in Russia, India, the United States, Saudi Arabia and the United Arab Emirates was also contributing to oversupply.
Bimo said China's industry now spans upstream production through downstream manufacturing. Its growing capacity supplies the domestic market while leaving a surplus for export. Indonesia's large population and industrial demand make it an attractive destination for those products, which are arriving at relatively low prices.
The pressure extends beyond China. Bimo said Indonesia has two cracker facilities, compared with three in Malaysia, four in Singapore and more than four in Thailand, leaving Indonesian producers competing with larger production bases elsewhere in ASEAN.
A study released October 29, 2026, by the Institute for Energy Economics and Financial Analysis illustrates the global downturn. According to Wedoany's account of the study, ethylene and propylene prices have declined 25% to 50% from their peaks in the 2010s, while utilization at basic chemicals plants has slipped from above 90% to the mid-to-high 80% range.
The study said China became a net exporter of petrochemical products in 2022, having previously been a net importer. It also cited BloombergNEF forecasts placing the peak in new global polyethylene capacity in 2026 and new propylene capacity in 2027, with new ethylene capacity possibly peaking in 2030.
Supply gaps coexist with export opportunities
Indonesia's capacity outlook varies by product. Installed capacity for ethylene and propylene is expected to be sufficient for domestic needs by 2027, but production still needs to be optimized, along with the use of ethylene in polyethylene manufacturing. For the polyolefins polyethylene (PE) and polypropylene (PP), installed capacity is projected to cover only about 60%-66% of domestic demand in 2027.
Those shortages leave room for investment, although cheap imports could make new plants less attractive to investors. Other products offer a different prospect: capacity beyond domestic requirements could support exports.
Bimo put Indonesia's optimized polyvinyl chloride (PVC) production capacity at about 1.2 million tons annually in 2026. Domestic demand, growing roughly 5.1% a year, is projected to reach 873,000 tons in 2027. He said the surplus capacity offers an opportunity to strengthen Indonesia's role as a PVC producer and exporter within ASEAN.
For superabsorbent polymers (SAP), used in diapers and sanitary pads, national capacity is planned to rise from around 90,000 tons a year to 140,000 tons by 2027. That would exceed domestic demand of approximately 100,000 tons annually, potentially allowing producers to supply the local market and export. Bimo cautioned that imports would remain a challenge.
PT Nippon Shokubai Indonesia plans to add 50,000 tons of annual SAP capacity through a $114 million investment, with commercial operations targeted for the third quarter of 2027.
The company also petitioned for an anti-dumping investigation into SAP imports from China. Indonesia's Anti-Dumping Committee (KADI) announced on August 14, 2026, that it had initiated the probe. According to KADI's initiation notice, as cited by Peacock Tariff Consulting, Indonesia imported 570,543 metric tons of SAP from January 1, 2022, through December 31, 2025. China supplied 354,918 tons, or about 62% of the total. The investigation is expected to take 12 months, with a possible extension to 18 months.
Major chemical projects target 2027 and 2029
The government has reported approximately $52 billion in planned investment in petroleum-based chemicals. Projects include PT Chandra Asri Alkali's caustic soda facility, which is targeting commercial operations in the first quarter of 2027. Caustic soda is used in water treatment, mineral processing and other industries.
The facility forms part of the $800 million Chlor Alkali–Ethylene Dichloride (CA-EDC) project in Cilegon, Banten. Developed by PT Chandra Asri Alkali, a subsidiary of PT Chandra Asri Pacific, the project is designed for annual output of 400,000 metric tons of caustic soda and 500,000 metric tons of ethylene dichloride.
Indonesia's sovereign investment agency Danantara and the Indonesia Investment Authority (INA) completed a combined $200 million investment, representing 25% of the project's value, as announced on October 15, 2026. Construction was about 80% complete in September. The project is expected to provide around 3,000 construction jobs and 250 permanent positions.
PT Polytama Propindo, meanwhile, plans a PP plant with annual capacity of 300,000 tons. The estimated investment is $450 million to $500 million, with commercial operations targeted for the second quarter of 2029.
Producers seek more flexible feedstock supplies
Fajar Budiono, secretary general of the Indonesian Olefin, Aromatic, and Plastic Industry Association (Inaplas), said producers increasingly need the ability to switch their feedstock mix. Some facilities can now combine naphtha, LPG and condensate, adjusting their use according to prices and availability. He said that flexibility also makes supplies more resilient by reducing dependence on a single raw material.
The industry is also pursuing domestic alternatives, including coal gasification. This process can turn coal into methanol, which can then be used to develop petrochemical feedstocks such as ethylene and propylene. Fajar said investment in locally sourced feedstocks requires policy certainty over the long term.
A planned coal-to-methanol project in East Kutai, East Kalimantan, illustrates that approach. PT Bumi Etam Chemical signed front-end engineering design (FEED) and EPCC framework agreements in July 2026 for the $2.3 billion facility at Batuta Chemical Industrial Park. The company is a joint venture of PT Arutmin Indonesia, PT Kaltim Prima Coal, PT Istana Karang Laut and China National Chemical Engineering Co. Ltd.
Commercial operations are planned for 2030. Initial methanol capacity would be 2 million metric tons a year, with a long-term target of 3.6 million metric tons annually. The facility is expected to consume about 7.78 million tons of low-calorie coal each year. In 2025, imports supplied 68% of Indonesia's methanol demand, totaling 1.3 million tons at a cost of about $400 million.
Bimo said realizing petrochemical investment plans depends on policy certainty and assured market conditions. Because upstream plants require substantial capital and long development periods, he said expansion must be accompanied by stronger intermediate and downstream industries that use their output. He called for coordinated development across the production chain.