Indonesian chemicals sector growth is driven by demand from the construction and automotive industries and an increasing population with rising incomes.
- The Indonesian chemicals sector value added grew 6.5%, and in 2017 a growth rate of about 7.5% is expected, driven by demand from the construction and automotive industries and an increasing population with rising incomes. However, some inefficiencies and red tape remain stumbling blocks.
- The sector mainly consists of a large number of smaller players, with only a few bigger companies active. Indonesian chemicals businesses are mainly serving the domestic market. The government recently introduced regulations in order to reduce gas prices for the fertilizer and petrochemicals segments, which should have a positive impact on profit margins.
- On average, payments in the Indonesian chemicals sector take 60 days. The number of non-payment notifications increased in 2016 in the plastics subsector, but no further increase is expected in 2017. The insolvency environment is stable, and no major increase in business failures is expected due to continued demand growth and limited competition in the market.
- Our underwriting approach to the chemicals sector is generally positive for all major segments, especially for petrochemicals and synthetic rubber. For the plastics subsector we have a more cautious approach due to some credit insurance claims in 2016.