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Cilegon Plant - LOTTE Indonesia New Ethylene (LINE). Credit: PT Lotte Chemical Indonesia

PT Lotte Chemical Indonesia (LCI) is undergoing a transformative phase marked by significant investment, new long-term supply agreements, and persistent industry headwinds. The company’s strategy and recent developments provide insight into both its growth ambitions and the broader challenges facing the Southeast Asian petrochemical sector.

Major Expansion: New Cracker Facility

LCI is set to commence operations at its new mixed-feed cracker in Cilegon, Banten province, Indonesia, in the second half of 2025. This facility, part of a $3.95 billion investment, will have an annual production capacity of 1 million metric tons of ethylene. The new cracker is a central component of the Lotte Chemical Indonesia New Ethylene (LINE) project, which aims to strengthen the company's upstream integration and supply chain resilience.

Strategic 10-Year Ethylene Supply Deal

In May 2025, LCI secured a 10-year ethylene supply contract with PT Asahimas Chemical, an integrated chemical producer in Indonesia. The contract, effective from July 1, 2025, to June 30, 2035, commits LCI to supply approximately 150,000 tonnes of ethylene per year to Asahimas Chemical. The agreement’s value is expected to exceed 10% of Lotte Chemical Titan (the Malaysian-listed parent)'s latest annual consolidated revenue, underlining its financial significance. Pricing for the contract is pegged to prevailing market rates, ensuring flexibility in a volatile market environment. The long-term deal provides both revenue stability for Lotte Chemical and supply security for Asahimas, supporting downstream chemical industries in Indonesia.

Financial and Market Pressures

Despite these strategic moves, Lotte Chemical Titan continues to face financial challenges. The company reported its eighth consecutive quarterly loss in Q1 2025, though losses narrowed year-on-year due to improved product spreads and contributions from its US associate. For Q1 2025, Lotte Chemical Titan posted a net loss of RM125.67 million, compared to RM178.03 million a year earlier, with revenue dropping 22.3% to RM1.49 billion on lower sales volume and prices. The global petrochemical sector is currently experiencing margin compression due to oversupply, particularly from China, which has weighed on profitability and forced companies like Lotte Chemical to operate existing Malaysian crackers at reduced capacity (45%-50% since December 2024).

Ownership Restructuring and Strategic Flexibility

To bolster its financial position, Lotte Chemical reduced its stake in the Indonesian venture from 49% to 24% in early 2025, selling the shares to a consortium of South Korean financial institutions. Lotte Chemical Titan retains a 51% stake in Lotte Chemical Indonesia. The company is also exploring feedstock flexibility for the new cracker, planning to source naphtha from the Middle East and potentially substitute up to 50% of naphtha feedstock with natural gas liquids such as LPG or ethane, depending on market economics.

Sector Outlook and Strategic Positioning

The Southeast Asian petrochemical industry is in a phase of consolidation, with mergers and acquisitions on the rise as companies seek to enhance shareholder value amid challenging conditions. Lotte Chemical’s long-term supply contract and the new Indonesian cracker position it to capitalize on regional demand growth, even as it navigates short-term market volatility and restructuring pressures. The new supply agreement is not expected to impact the company’s share capital or ownership structure, maintaining stability for investors.

Conclusion

Lotte Chemical Indonesia’s ambitious expansion and strategic supply agreements reflect a commitment to long-term growth and regional market leadership. However, the company continues to navigate a difficult economic landscape characterized by global oversupply, margin pressure, and the need for financial restructuring. The coming years will be pivotal as the new cracker comes online and the company seeks to leverage its strengthened position in Indonesia’s growing chemical sector.

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Goh, Jun Lai, Cheng Yi