Business

Honam to invest $5b in
petrochemical complex

South Korean Honam Petrochemical Corp., Asia’s second-largest petrochemical producer, plans to invest up to US$5 billion to build a petrochemical complex in Indonesia, a company executive says.

Honam’s senior managing director of business development, Kim Gyo-hyun, said in Jakarta on Wednesday that his firm expected to build the integrated petrochemical compound in Cilegon, Banten, in the first quarter of 2013.

“We anticipate that the construction will be completed by 2016, but the Industry Minister (MS Hidayat) expects it can be finished faster,” he told reporters after a meeting at the ministry’s office.

The Korean company recently signed a memorandum of understanding (MoU) with state-owned steel firm Krakatau Steel, which would provide 40 hectares of land out of the total of 60 needed to set up the compound, he said. For now, it will continue its feasibility study for the project and discuss financing issues later.

According to Kim, the naphtha cracker and its downstream plants will source raw materials from local suppliers where possible, but will also import due to the limited domestic supply.

Based on the firm’s proposal, it will annually produce 1 million tons of ethylene, 550,000 tons of propylene, 600,000 tons of polyethylene, 700,000 tons of mono ethylene glycol, 600,000 tons of polypropylene and 140,000 tons of butadiene.

Kim said that once the integrated petrochemical was operating, it would give a significant boost to the domestic supply of petrochemicals.

“We will prioritize our output for the domestic market. Around 80 percent of the output will be for the local market, leaving a small part for export,” he explained. At present, the domestic supply of polyolefin products depends largely on the country’s largest petrochemical producer, PT Chandra Asri Petrochemical Tbk, which is currently the sixth-largest polyolefin producer in Southeast Asia.

Due to the lack of local production, the local plastics industry also relies heavily on imported raw materials, such as propylene and polyethylene, mostly from other ASEAN countries, the Middle East, the United States and European countries.

Polyolefin products, such as polyethylene, propylene and polypropylene are raw materials used in a wide range of plastic-based household products, including plastic bags, water cups, hoses and pipes.

Honam is 57.2 percent owned by the South Korean Lotte Group. It has a combined production capacity of 2.5 million tons per year from its plants in South Korea and Malaysia. In December 2010, the firm acquired Malaysia’s largest petrochemical maker, Titan Chemicals Corp., which is the holding company of Indonesia’s first and largest polyethylene firm, PT Titan Petrokimia Nusantara. The proposed Indonesian plant will see Honam become the largest petrochemical firm in Asia.

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