Indonesian President Joko Widodo’s push to boost domestic petrochemical production has helped send shares of the nation’s largest plastic producer up 205 percent, making it this year’s top performer in the market.
The surge in shares of conglomerate PT Barito Pacific compares with a 0.6 percent gain for the benchmark Jakarta Composite Index.
The conglomerate, which produces everything from energy to petrochemicals, is also the best performer among 155 members of the MSCI ASEAN Index.
A growing middle class and urbanization have been driving the demand for plastic products in Indonesia. The strong appetite contributed to a deficit of 193 trillion rupiah (US$13.8 billion) in petrochemicals in Southeast Asia’s largest economy, which worsened the current-account deficit, said Widodo, who set a target to end imports of the material in the next three to four years.
Widodo, known by the nickname Jokowi, has pledged to support petrochemicals’ capacity upgrade as the nation aims to narrow the gap in the current-account balance, which stood at 2.7 percent of GDP in the third quarter.
Indonesia’s annual production capacity of polyethylene, a raw material for bottles and plastic bags, can only meet a third of its domestic demand of 2.3 million tonnes, he said in a speech.
Barito, originally a timber company founded by tycoon Prajogo Pangestu in 1979, would benefit from such a push, as it is the biggest petrochemical player in the nation. Shares of its unit, PT Chandra Asri Petrochemical, jumped 68 percent this year to a record high.
The usage of plastics has come under global scrutiny in a bid to protect the environment. The UN Environment Programme estimates about 300 million tonnes of such waste is produced annually and has initiatives to reduce single-use plastics, introducing levies or banning certain products outright.
Yet investors are bolstered by the resilient consumer sector in Indonesia amid global trade tensions.
Official data showed household consumption, which accounts for 56 percent of the economy, has been growing more than 5 percent over the past three quarters, a similar pace as last year.
That is adding to confidence that demand for plastics would drive consumption of 7.2 million tonnes of raw materials annually, according to official data.
“Petrochemical demand has a high correlation with GDP or consumption growth,” Lee Young Jun at PT Mirae Asset Sekuritas said.
An improvement in profitability and expectations that additional capacity built from next year to 2025 would provide better growth drove the gains in Barito and Chandra Asri shares, Lee said.
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