How can the plastics industry continue to develop following market dynamics? How is the investment in the plastic industry in Indonesia, especially in the era of sustainable products?
In everyday life, plastic and humans are two things that are difficult to separate. Many things related to human activities are made of plastic. Starting from shopping bags, food and beverage packaging, skincare packaging, household appliances, electronics, and many other things made of plastic. According to data from statista.com, global plastic production reached 368 million metric tons a year in 2019 with a CAGR of around 3.5% from 2010.
China is the largest producer of plastic with 31% of global production, followed by North America with a production volume of around 56 million metric tons in 2019. mordorintelligence.com predicts that the Indonesian plastics market will record a CAGR of more than 6% during the forecast period.COVID-19 harmed the plastic industry. However, the industry is still being helped by demand from the packaging segment due to the soaring use of e-commerce, online retail, and online F&B during the pandemic. So that the plastic industry market recovered after 2020 because consumer activity began to get excited again.
What is the prospect of the plastic industry in Indonesia and what are the drivers of the demand? How does the circular economy in Indonesia start to build the foundation?
The Growth and Potential of the Plastic Industry Globally
Since then plastic has become a part of human life almost all over the world and it is estimated that more than 9 billion metric tons of plastic have been produced. Statista.com estimates that in 2020 the value of the global plastics market will be USD 580 billion and USD 593 billion in 2021, it is expected to continue to grow to reach a value of more than USD 810 billion in 2030 with a CAGR of 3.7% during the forecast period 2022 to 2030.
Despite the protests from many environmental organizations due to pollution problems, plastic is still a very important commodity in almost all aspects of modern society’s life. This makes the demand for plastic expected to continue to increase with estimates that production volume will reach 589 million metric tons in 2050. With attention to environmental sustainability, the demand for plastics that are more environmentally friendly will also increase.
ExxonMobil, Sinopec, and LyondellBasell are some of the key players in this industry. But China is the main producer of plastics where total production is 31% of global production, followed by North America with a production volume of more than 56 metric tons in 2019. Of the 7 types of plastic, Polyethylene (PE) is the type most produced and used worldwide. The second most produced type of plastic is polypropylene (PP), with a production volume of more than 70 million metric tons in 2020.
Investments are Flooding The Plastic Industry in Indonesia, Driven by Several Key Drivers
The use of plastic in Indonesia is increasing because the e-commerce industry requires the packaging of goods. According to the data from Agriculture and Agri-Food Canada, in 2021 the value of e-commerce retail sales in Indonesia reached USD 37 billion, an increase compared to the previous year which was only USD 27.72 billion. The packaging segment with polyethylene terephthalate (PET) plastic is the most common in Indonesia.
The market for the plastics industry in Indonesia is highly developed where according to data from the United States Department of Agriculture, the value of retail packaged food sales in Indonesia reached USD 33 billion in 2021, higher than in 2020 which was USD 32.2 billion in. Based on data from bisnisindonesia.id that the downstream plastics production capacity will grow by up to 25% and factories will increase product diversification to meet the existing demand.
Several Fast Moving Consumer Goods (FMCG) companies have also set up their integrated packaging production units including the Wilmar Group, Mayora, and Indofood. Another company investing in the plastics industry in Indonesia is ExxonMobil, in November 2022 signed a memorandum of understanding with PT Indomobil Prima Energi (IPE) regarding the application of advanced plastic recycling technology on a large scale in Indonesia.
Toyobo Company also announced an investment of USD 72 million in PT. Trias Toyobo Astria (TTA) last September 2022 to open a new polyester film packaging facility in Indonesia. Based on data from Inaplas, investment in the downstream plastics industry is predicted to reach USD 500 million in 2022, most of which will be allocated for new machines.
Based on data from kontan.co.id which said that the downstream plastic industry has experienced a significant increase of 85% in early 2022. And it is said on cnbcindonesia.com, the total consumption of plastic in Indonesia in a year reached 7.6 million tons, of which 45% of this amount is plastic packaging products, 15% for automotive products, 17% for construction, 15% for household appliances, 2.5% for medical, and the rest for accessories. According to the data from the Indonesian Central Statistics Agency (BPS) that the Indonesian rubber and plastic industry contributed USD 4.5 billion in 2021, which grew by 1.08% from the previous year.
Circular Economy Development and Plastic Innovation in Indonesia
During the growth of the Indonesian plastics industry, there are many challenges to face, especially the issue of climate change and the demands for a sustainable program that must be proclaimed. Therefore, according to the data from mediaindonesia.com, Indonesia has started implementing a circular economy which is projected to increase the contribution of the plastics industry to GDP by 2.3% to 2.5%. Especially the plastic industry is included in the five priority sectors of the Indonesian government.
The circular economy is a new industrial model that puts forward the principles of reducing, reusing, and recycling to reduce primary resources as well as waste production. According to the data from mediaindonesia.com, Indonesia needs to carry out a transformation towards a circular economy because apart from being able to increase GDP growth, the circular economy concept can also generate 4.4 million new jobs by 2030, of which three-quarters empower women.
In addition, the circular economy will help efforts to achieve the Nationally Determined Contribution (NDC) as Indonesia’s commitment to reducing greenhouse gas emissions by 29% by 2030, and it can be increased to 41% if there is international cooperation. It was also mentioned in mediaindonesia.com, recorded from 2010 to 2019, as many as 895 companies in Indonesia won green industry awards, and 1,707 industries were also successfully certified for performance appraisal in environmental management which is estimated to have reduced the greenhouse gas effect by 93.83 million tons and reducing pollutants by 50.59 million tonnes.
It is also said that the estimated annual capital investment needed to smoothen the transformation to a circular economy is around USD 21.6 billion. With a very promising plastic market, several global players are interested in establishing companies in Indonesia. Here are three international companies that have been operating in Indonesia.
1. BASF SE
Based on globaldata.com, BASF SE (BASF) is a chemical company headquartered in Ludwigshafen, Germany. Some of the products that BASF produces include chemicals, plant protection products, plastics, and performance products. BASF managed to generate Revenue in 2022 of USD 92.8 billion globally, an increase of 32.9% compared to 2021.
2. Toray Industries, Inc.
Toray Industries, Inc (Toray) is a provider of cutting-edge materials such as fiber, plastics, chemicals, composite materials, life sciences products, optical products, medical devices, pharmaceuticals, to fashion apparel. Toray has operations in Europe, North America, South America, and Asia Pacific with a total of 48,842 employees. In 2023, Toray recorded a revenue of USD 19.8 billion.
3. Lotte Chemical Titan International Sdn Bhd
Lotte Chemical Titan which was founded in 1989 and headquartered in Kuala Lumpur, Malaysia, produces polypropylene, polyethylene, ethylene, and propylene for various applications, from cosmetic containers to bottle caps and food containers, household goods to automotive products. Lotte have revenue of USD 2.3 billion in 2021, with a global number of employees of 1,510.
Enter The Indonesian Plastic Market with BRIGHT Indonesia
Because of the huge impact of the plastic industry in Indonesia, of course, it takes a lot of in-depth research about the plastic market in Indonesia. So, to enter the Indonesian market, you need the right local partner to assist you.
BRIGHT Indonesia is an ideal business partner for you. We will assist you on the ground, including virtual assistants during the mission, logistical planning, and detailed communication. It can cause your company to focus on developing partnership cooperation rather than the hassles of the business trip.
BRIGHT Indonesia provides several services such as Market Insight Research, Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment. The services will help your business to:
- Provide assistance for you in expanding and developing your business by identification of potential partners.
- Secure the agreement between client companies and future Indonesian business partners by providing a list of potentially suitable partners, arranging business meetings, and acting as a liaison.
- Supporting our foreign client companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
- Link client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.
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