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ublicly listed petrochemical company Lotte Chemical Titan, a subsidiary of the South Korean Lotte Group, is studying the possibility of building a US$4 billion upstream plant to reduce imports of raw materials.

Lotte Chemical Titan president director Peter Yoon said the new plant would be built on 40 hectares near its existing plant in Cilegon, Banten.

Around 40 percent of the total investment needed for the new plant would be taken from the company'€™s internal cash, while the rest would be from bank loans, Yoon said, adding that all investors would be from South Korea.

'€œWe are still negotiating with the land owner [regarding the land price], therefore we have yet to decide when construction will start. But once it starts, it will take
about three years,'€ Yoon said during a press conference in Jakarta on Thursday.

Lotte Chemical, which currently has a production capacity of 450,000 tons of polyethylene per year, expects the upstream plant to boost production capacity to 1 million tons by creating ethylene.

Lotte Chemical Titan is a petrochemical company in the middle-downstream stage. It manufactures and distributes polyethylene products under the Titanvene brand.

Meanwhile, ethylene is raw material for polyethylene, propylene, and polypropylene. Final products in the downstream stage include plastic bags, water cups, hoses and pipes.

'€œCurrently, we are importing almost 90 percent of raw materials from Malaysia,'€ manufacturing director Jojo Hadrijanto said, adding that the imported raw material contributed to the company'€™s losses throughout last year until the first quarter of this year.

During the January-March period this year, Lotte Chemical Titan suffered a net loss of $2 million, worse than last year'€™s corresponding period of $1.1 million, on higher electricity costs, lower market price and unstable supply of raw materials, according to data from the Indonesia Stock Exchange (IDX).

Yoon added that 2015 would be a very complicated year as its margin spread would continue to decrease.

Aside from rising electricity costs following the 30 percent electricity rate increase, Yoon said that the price of its product in the market was beyond the company'€™s control.

The company has seen its product price fall since last year to as low as $171 per ton, 28 percent lower than 2013'€™s $219 per ton.

Lotte Chemical commercial head Kim Tae Kwang said global market price had decreased by up to 60
percent.

Kwang added that the company was also falling short of raw material supply.

'€œWe could not produce more as we do not have the raw material,'€ Kim said.

The company allocated this year around $4 million in capital expenditure for the maintenance of its existing 36-hectare plant.

Lotte Chemical recorded a sales volume of 361,000 ton, around 83 percent of which went to the domestic market. The total exported volume was lower than 2013 as the company cut its exports to China to earn more profit.

'€œWe want to focus more on the domestic market as it offers more money,'€ Kim said, adding that the company had a domestic market share of 29 percent.

Lotte Chemical booked $6 million in net loss last year, the same figure it made in the previous year despite the firm'€™s net sales increase of 7 percent to $622 million.

The company'€™s plan to build an upstream plant is also part of its strategy to compete with other petrochemical companies in the country, including its biggest competitor, Chandra Asri Petrochemical, which produces ethylene. (foy)