Chandra Asri spent $380M debottlenecking in the 2015 trough and profit rose 11-fold

Chandra Asri operates Indonesia’s largest petrochemical complex at Cilegon, with the country’s only integrated chain from naphtha cracker to polyethylene, polypropylene, butadiene and styrene monomer. When regional petrochemical prices collapsed in 2015, its net profit fell to just $26.3 million.

The answer was not retrenchment but debottlenecking. From 2015 the company invested $380 million to raise ethylene output 43 percent to 860,000 tonnes a year — a fraction of the roughly $5 billion a new greenfield cracker would cost — and prepared the expanded capacity to run at full rates.

The bet paid off within a year. Low feedstock costs and firm product prices delivered a $300 million net profit in 2016, a 15 percent net margin, and management guided for $360 million of profit and $2.4 billion of revenue in 2017. By mid-2017 the debottlenecked cracker was running near full capacity.

Net profit rose from $26.3M in 2015 to $300M in 2016 at a 15 percent margin, with $360M guided for 2017; ethylene output reached 860,000 tonnes.

Debottlenecking cost $380 million against roughly $5 billion for a greenfield cracker, so the same extra volume arrived at a small fraction of the price.

The company expanded against the cycle, so capacity was ready before the 2016 price recovery rather than two years after it.

As Indonesia’s biggest ethylene producer serving import-substitution demand, it kept pricing power and converted the recovery into a 15 percent net margin.

In commodity downturns, the winner is whoever owns the cheapest incremental capacity when prices turn. Debottlenecking bought upcycle-ready volume at a fraction of greenfield cost and time.

Chandra Asri kept compounding the position. In February 2018 it broke ground on a $350 million polyethylene plant meant to more than double PE capacity to 736,000 tonnes a year by 2020, and it promoted a planned $5 billion second petrochemical complex at Cilegon. By mid-2017 the cracker was already being prepared to stretch again to 900,000 tonnes by 2020, turning the 2015 trough decision into a decade-long capacity lead in Indonesian petrochemicals.