Demands for tires surge to follow fast growth of automotive industry in Indonesia, 2010.
In the five year period of 2006-2010, the country's tire production grew 6.3% a year. Based on data from the Association of Tire Producers APBI), the country's tire production totaled 40.01 million units in 2006, up to 49.6 million units in 2010, or an increase of 26.8% from the previous year. The increase in the production was boosted by growing demand on the domestic.
The increase in the production also followed new investment in tire industry. The availability of the main basic material rubber also contributed to the expansion of tire industry in the country the abundant availability of the basic material has attracted investors such as Hankook Tire, a tire producer from South Korea. Hankook started building its tire factory in Cikarang, West Java.
Meanwhile, the country's exports of tire has fluctuated, but tended to increase. In 2010, the country's tire exports reached 35.1 million units or an increase of 25% from 28.2 million in the previous year. Most of the country's tire production has been exported
Despite the good market abroad, sales on the domestic market are also encouraging. APBI predicted that the country's tire industry will grow 10% in 2011 with production reaching 54.6 million tons to follow the growing demand for car and motorcycle tires APBI said, Indonesia needs two to three new tire factories to keep pace with the market demand.
Tire Producers and Production Capacity
The country has 13 producers of tires grouped in APBI with a total production capacity of 50 million units of four wheeler tires and 28 million units of two wheeler tires in 2010. Around 30% of the production was disposed of on the domestic market used both as original equipment by car and motorcycle makers and as replacement tires. The bulk or 70% of the production is exported to various countries including the United States, Europe, Middle East, Africa and other Asean countries.
In term of capacity PT Gajah Tunggal (GT) is the largest tire producer in the country. GT has an annual production capacity of 4.3 million units of tire casings and 4.3 million units of inner tubes of four wheelers; 6.2 million units of tire casings and 6.2 million units of inner tubes of two wheelers and 784,000 units of tire casings and 784,000 units of inner tubes of bicycles.
GT was established in 1951 with the name of NV Perusahaan Pabrik Karet "Hok Thay Hin". The name of the company was changed in 1961 with PT Gajah Tunggal. The tire producer operates car tire factory since 1978 in Tangerang, Banten. The company with the status of domestic investment (PMDN) company started producing motorcycle tires in 1972.
GT has a number of subsidiaries to support its operations including PT Andayani Megah, which operates a factory producing nylon tire cord, one of the main basic materials of tires and Langgeng Bajapratama that produces bead wires. PT Sentra Sintetika Jaya, a subsidiary of PT GT Petrochem, which is also a member of the GT group, produces synthetic rubber (SBR).
The types of tires produced by Gajah Tunggal include tires for motorcycle, sedan, light truck, bus, big truck and heavy duty carriers. Most of the country's tire production is exported. The company has the largest share in the market of tire for motorcycles, trucks, and buses. It is planning to expand its production capacity for sedan tires especially radial tires. All of tire products use the brand of GT.
Recently GT sold its subsidiary operating in steel wire industry and took over the entire assets of GT Petrochem Industries in tire industry. GT took over the fixed assets of tire cord division of PT GT Petrochem Industries (GTPI) at a price of Rp 1.04 trillion. It has also taken over the fixed assets of Sentra Sintetikajaya (SSJ), a producer of synthetic rubber, Styrene Butadiene Rubber (SBR) at a price of Rp 643 billion. GT is able to operate more efficiently after the acquisition of the subsidiary of GTPI and Sentra Sintetikajaya as it no longer depends on other companies for tire cord and, and synthetic rubber with value added tax of 10% .
Under its restructuring program, GT divested its entire 51% stake in PT Langgeng Bajapratama (LBP), which operates in steel wire manufacturing to PT Gajah Tunggal Prakarsa (GTP).
Meanwhile, PT Bridgestone Tire Indonesia, which has the status of foreign investment (PMA) company has a tire factory in Bekasi, West Java producing 2.5 million units of tire casings for four wheelers, 1.6 million units of inner tubes for four wheelers, 180,000 units of tire casings for two wheelers and 325,000 units of flap per year.
PT Goodyear Indonesia has a production capacity of 3.2 million units of tire for four wheelers, 114,000 units of tire casings for two wheelers, 432,000 units of flap and 2,100 units of bladder per year. The PMA Company with principal in Ohio, the United States, is the first tire producer in Indonesia starting operation in 1935. Its factory is located in Bogor, West Java. Goodyear has decided to make Indonesia as its production base for this region after the implementation of the Asean FTA (AFTA).
PT. Hung-A Indonesia is a major producer of motorcycle tires. The PMA Company has an annual production capacity of 7.6 million units of tire casing for two wheelers, 8.4 million units of inner tubes for two wheelers, 846,000 units of tire casings for four wheelers and 1.4 million units of inner tubes for four wheelers. Its tire products use the brand of Thunderbird.
The prospect of business in motorcycle tire industry in Indonesia is encouraging with the number of motorcycles in the country grows by up to 1.5 million a year.
The largest tire producers in the country are PT. Gajah Tunggal with its brand of GT dominating the market. The second largest producer is PT. Bridgestone Tire Indonesia with its brand of Bridgestone, followed by PT. Goodyear Indonesia. Bridgestone and Goodyear produce no motorcycle tires.
Other producers include PT. Industri Karet Deli with the brand of Swallow, PT. Suryaraya Rubberindo Industries with the brand of Federal, PT Elang Perdana Tyre Industry, PT Banteng Pratama, South Korea's PT. Hung-A Indonesia using the brand of Thunderbird and PT. United King-Land using the brand of Kingland.
Meanwhile, two producers PT Intirub and PT Mega Safe Tyre Industry have stopped operation since 2006 on financial problem. PT Intirub had a production capacity of 1,500 units and PT Mega Safe Tyre Industry 1,800 tons per month. PT. Intirub collapsed after the bankruptcy of PT. Mega Safe, which was the majority 53.79% shareholder of Intirub. In 1999. Mega became a subsidiary of Argo Manunggal Group, formerly owned The Nin King. Other shareholders of Intirub included PT Trisetijo Manunggal Utama (36.31 %) and the government (9.9 %).
Production up 6.3% on the average per year
APBI said the country's tire production in the period of 2006-2010 grew 6.3% annually--from 40.01 million units in 2006 to 42.32 million units in 2007 and to 42.84 million units in 2008. In 2009, the production shrank 8.5% to 39.19 million units before rising to 49.6 million units in 2010. The decline in 2009 followed the falling demand for cars in 2010, the condition improved marked with a surge in car and motorcycle sales. Car sales peaked at 764,000 units in 2010 or an increase of 58.2% on-year.
In 2011, APBI predicted that the country's production of car tires will surge 10%15 % to 54.6 million. The country's production of car tires in 2010 rose 28.8% and that of motorcycle tires shot up 43.2% from 2009.
Financing firms and banks as well as dealers offer credits with attractive terms for the purchase of cars and motorcycles the down payment is lower at only 10% of the price of vehicle, the interest rate are relatively low at 5.25%--9% per year and period of installments from 12 months to 48 months. Some dealers also offer discount, cash back bonus, etc.
Around 96% of the country's tire production for two wheelers is disposed of on the domestic market, but most or 70% of car tire production is exported. Strong demand in exports market has been the main driver of growth in the country's car tire production
The fact that Indonesia is the second largest producer of natural rubber contributed to development of the country's tire industry. In 2010, Indonesia produced 2.92 million tons of rubber.
Sales dominated by exports
Only 30% of the country's car tire production is disposed of on the domestic market. The rest is exported including to Japan, Europe, the United States, other Asian countries and Africa.
Demand for car tires on the domestic market has continued to increase especially with the strong growth recorded in the country car industry. Car tires are used by car makers as part of original equipment (OEM), but demand is larger for replacement tires.
In 2006, 85.5% or 34.2 million units of the country total production of 40.01 million units of car tire were exported with 1.6 million units used as original equipment by local car makers and 4.21 million units disposed of on the domestic market as replacement tires.
In 2007, tire sales totaled 42.32 million units and 82.7% or 35 million units of which were exported with 2 million units disposed of on the OEM market and 5.32 million on replacement market.
In 2008 and in 2009 tire sales totaled 42.84 million and 39.19 million units respectively. Exports dropped to 30.5 million units and 27.9 million units respectively. The decline in export was as a result of global economic slow down that began in 2008 Meanwhile, the market demand from car makers in he country reached 2.3 million units in 2008 and 2.1 million units in 2009. The sales to replacement market reached 10 million units in 2008 and 8.39 million units in 2009.
In 2010, demand for car tires surged both in the country and export markets. That year sales totaled 49.60 million units and 70.8% or 35.1 million units of which were exported the exports raised 25.8% on-year. Demand also rose from car makers abroad to 3.9 million units and from replacement market to 10.6 million units.
Tire sales to the spare part market abroad grew 15.2% to 10.6 million units in 2010 from 9.2 million units in 2009. Sales to car makers grew 85.7% to 3.9 million from 2.1 million units.
Tire sales in Indonesia in the first quarter of 2011 rose 7% on year. Exports in the whole of the year are predicted to reach 36 million -38 million units worth US$ 1 billion--US$ 1.2 billion falling short of the target figure of US$1.5 billion.
Production dominated by car tires
In 2009-2010, tire production was dominated by car tires. The production car tires grew 26.6 % per year--from 39.19 million units to 49.60 million units.
Meanwhile, the production of motorcycle tires surged 42.6% to 40.5 million units from 28.4 million units.
Six of eight tire producers posted large sales. The six companies include PT. Gajah Tunggal (IRC). Suryaraya (Federal), Banteng Pratama (Mizzle), Industri Karet Deli (Swallow), Sumi Rubber (Dunlop), and Surabaya Kencana (Primax). A producer PT Hung-An Indonesia posted a decline in sales.
Investment Interest High
Investors have indicated strong interest in producing tires in the country in the past three years. A number of investors have built new factories and old producers expanded their capacity. Large producers like PT. Gajah Tunggal, PT. Bridgestone and PT. Good Year Indonesia have expanded their factories to increase production capacity.
Investors, however, complained about poor condition of infrastructure. Distribution of natural rubber from the plantations is hampered by poor road condition. In addition, there is no support from banks to finance development of inner tube industry in the country.
PT Multistrada Arah Sarana Tbk (MAS) in 2011 set aside US$ 140 million for capital spending. A MA has secured a loan of US$ 143 million from a bank syndicate. The five year loan is pledged by PT Bank International Indonesia Tbk, PT Bank Cimb Niaga Tbk, and HSBC. MASA has also secured a six-year loan from Unicredit AG of Germany worth US$ 42 million
The funds will be used for business expansion in two phases starting last year. In the first phase the company plans to increase its production for car tires to 22,500 units per day from 17,500 units per day at present. Its production capacity for motorcycle tires will be expanded to 16,000 units per day from 8,000 units at present. In the second phase its production capacity for car tires will be increased to 28,500 units per day and motorcycle tires to 16,000 per day by the end of 2011.
MAS will need rubber basic material totaling 24,000 tons in 2011--up from 12,000 tons in 2010. In 2011, in order to guarantee supply of the rubber basic material, MASA plans to establish a subsidiary to operate rubber plantations integrated with crumb rubber plants. The crumb rubber factories will have a production capacity of 5,000 tons. The project will cost around US$ 150 million. According to plan the factories will be built in Central Tapanuli, North Sumatra, Kalimantan and Sulawesi.
MAS are a tire producer with local brands of Achilles, Corsa and Strada for car tires. Corsa is also used as the brand for motorcycle tires. Its production capacity for car tires is 28,500 units per day and the capacity for motorcycle tires is 16,000 units per day by the end of 2011. Currently MAS has produces tires with a diameter of up to 24" and winter tires.
The company exports part of its production such as to the United States, Asia Pacific, Europe, Middle East and Africa.
MAS have continued to increase its sales of radial car tires and motorcycle tires Corsa by expanding its networks of distributors all over the country. The company has also sought to sell tires to car and motorcycle factories as its quality has been well recognized.
Hankook Tire Co Ltd from South Korea through local unit PT. Hankook Tire Indonesia is building a tire factory with a capacity of 11.5 million units a year. The factory is being built in Cikarang, West Java starting in the first quarter of 2011 to be completed in September 2014. The project is estimated to cost US$ 1.2 billion. In the first phase investment is around US$ 353 million. The factory is being built over a 60 hectare plot of land. It will produce car and motorcycle tires. The factory will be the fifth largest tire factory in the world with a total production capacity of 100 million units per year in 2014.
The factory of Hankook Tire in Indonesia will provide 1,400 jobs by 2014 and the number is expected to rise to 2,800 in 2018. Hankook will export tires to North America and Middle East. Hankook has chosen Indonesia partly because of the availability of rubber as the main basic material. The country produced 2.92 million tons of natural rubber in 2010 making it the second largest producer in the world after Thailand. The Southeast Asian countries including Malaysia and Vietnam account for 95% of the world's production of natural rubber.
Around 70% of tires produced by Hankook Tire in Indonesia will be for exports to Middle East, the United States and other Southeast Asian nations.
Matador, a tire producer in the Czech Republic, plans to build a tire factory with an investment of US$1.2 billion in Palembang, South Sumatra, where supplies of basic material are sufficiently available. Matador wants to produce larger tires such as tires for armored cars and heavy duty trucks.
In 2010, Goodyear expanded its production capacity to 12,000 tires per day from 8,000 units earlier. Its production capacity for radial tires rose to 65% in portion. It exports 40% of its production and sells the rest on the domestic market. The expansion cost around US$ 54 million including US$ 30 million in loan from HSBC, and the rest in internal fund.
Goodyear has exported tires to 52 countries in the world. It also supplies tires for car makers like producers of Toyota, Honda, Daihatsu, and Mercedes-Benz.
PT. Bridgestone planned to invest Rp1.2 trillion to expand the production capacity of its factory in Karawang to 32,000 units in 2010.
PT Gajah Tunggal Tbk (GT) invested US$ 180 million also for capacity expansion since 2008 until end of 2010. The company increased its production capacity for radial tires to 45,000 units from 30,000 units in 2008. His expansion was to meet growing demand in the export markets--Europe, America, Middle East, Asia, Africa, Australia and New Zealand. Its production capacity for motorcycle tires rose to 60,000 units per day from 13,600 units per day. GT also boosted its capacity for inner tubes to 162,000 units per day from 74,000 units its production capacity for car tires was expanded to 45,000 units per day from 27,000 units.
Reports said that PT. Mega Rubber would be taken over by JK Tyre an investor from India. The Indian investor has indicated interest in the factory since 2010. Currently, PT Mega Rubber, which is located in Semarang, has suspended operation since 2006. The company produced motorcycle and car tires.
PT Mega Safe Tire in Salatiga has also been lying idle. Mega Rubber and Mega Safe had a total installed capacity of 1,500 units of tire per day. The two factories already lay off their 1,700 workers four year earlier. The selling value of PT. Mega Rubber is estimated at US$ 20 million and PT. Mega Safe Tire at US$ 40 million. Modernization of the two factories will need a total investment of around US$ 150 million.
Tire quality standard--SNI
The government has issued a regulation requiring tires to meet the quality as set in the Indonesian National Standard (SNI) in a bid to prevent imports of products not up to standard in quality from flooding the domestic market. With the SNI, local products of inner tubes are more competitive in price. Tires imported officially are only ones for certain market segments around 300,000 units per year.
SNI requirement is issued through a decision of the trade and industry minister No. 595/MPP/Kep/9/2004 on 23 September 2004. The SNI regulation is effective on five types of tire--passenger car tires with SNI 06-0098-2002, light truck tires (SNI 06.0100-2002), truck and bus tires (SNI 06.0099.2002), motorcycle tires and inner tubes of motor vehicle SNI 06-6700.2002.
Based on a joint ministerial regulation of the industry and trade ministers No. 02/M-Ind/Per/3/2006 and No. 02/M-Dag/Per/3/2006 revising the decision of the industry minister No. 595/MPP/Kep/9/2004, effective in March 2006, SNI is required to be printed on tires not in sticker.
With the SNI regulation, some tire producers have provided their own laboratories to ensure that their tires are up to SNI quality standard. Currently, there are nine units of appointed laboratories and seven of them have been used to test the quality of tires in the country. Two of the laboratories are owned by the government.
The laboratories of tire producers, however, have not been accredited by him National Accreditation Committee (KAN) as they have not been up to standard set by the accreditation agency. Tire producers having laboratories include Bridgestone Tire Indonesia, Goodyear Indonesia, Gajah Tunggal, Sumi Rubber Indonesia, Mega Safe Tyre Industry, Elang Perdana Tyre Indonesia and Industri Karet Deli.
A number of companies importing tires with the brands of Yokohama, Pirelli, Michelin, Falkan and Continental have sought to secure the SNI certificate from official laboratories in a number of cities including Bandung, Yogyakarta, Ciracas and Serpong.
However, the SNI regulation is not fully effective as there are still many tires found in the market not up to SNI standard in quality. The tires are imported into the country either legally or illegally. APBI, therefore, asks the government to carry out investigations on possible illegal practices. Imports of tires have to be closely controlled at ports.
APBI estimates that more than 2 million units of tire have been imported illegally into the country every year and they are not up to SNI standard. Chinese products have gained market foothold with a market share of 30% in the country. Since 2005, China has increased its tire production to reach 113 million units a year. Chinese products began to gain domination in the world market.
It is suspected that illegal imports have found their way via Batam and the Riau Islands province. Illegal imports from China, India and Singapore have been accused of destabilizing the domestic market causing injuries to the local industries.
Chinese products are 40%-60% cheaper compared to local products, but the quality of the Chinese products are much inferior.
APBI said there are many brands of tires illegally imported into the country such as Jet, Triangle from China and India and used tires from Singapore. Around 700,000--1.2 million units of tire without SNI entered the domestic market every year or around 10% of the domestic requirement of 12 million units per year.
The WTO has been notified about the imposition of the SNI standard. The government, therefore, should be able to act firmly against illegal imports of tires not up to standard in quality, APBI said.
The SNI regulation, however, causes problem for importers of cars in completely built-up (CBU) form as they have to pay extra cost for the laboratory to test the tires of imported cars as part of the original equipment, despite the fact that control of the quality is tighter in Japan and Europe from where the cars have been imported.
Table--1 Indonesian tire producers, 2011 No Companies Status Location PT. Bridgestone Tire Bekasi, West Java. 1 Indonesia PMA Karawang, West Java 2 PT. Goodyear Indonesia PMA Bogor, West Java 3 PT. Gajah Tunggal Tbk PMDN Tangerang, West Java. 4 PT. Sumi Rubber Indonesia PMA Cikampek, West Java 5 PT. Industri Karet Deli Non PMA/ Medan, North PMDN Sumatra 6 PT. Elang Perdana Non PMA/ PMDN Citeureup, West Java Tyre Industry 7 PT. Suryaraya Rubberindo Non PMA/ PMDN Bogor, West Java Industries 8 PT. Banteng Pratama PMDN Citeureup, West Java Rubber Co 9 PT. Hung A- Indonesia PMA Bekasi, West Java 10 PT. Unitsed Kingland Non PMA/ PMDN Tangerang, West Java Company Ltd 11 PT. Surabaya Kencana Non PMA/ PMDN Surabaya, East Java Tyre Industry 12 PT. Multistrada Arah PMA Cikarang, West Java Sarana Tbk No Companies Brands PT. Bridgestone Tire 1 Indonesia Bridgestone 2 PT. Goodyear Indonesia Good Year 3 PT. Gajah Tunggal Tbk GT IRC 4 PT. Sumi Rubber Indonesia Dunlop 5 PT. Industri Karet Deli Swallow 6 PT. Elang Perdana Accelera, Forceum Tyre Industry 7 PT. Suryaraya Rubberindo Federal Industries 8 PT. Banteng Pratama Mizzle Rubber Co 9 PT. Hung A- Indonesia Thenderbird 10 PT. Unitsed Kingland Kingland Company Ltd 11 PT. Surabaya Kencana Primax Tyre Industry 12 PT. Multistrada Arah Achilles,Corsa, Strada Sarana Tbk No Companies Type PT. Bridgestone Tire 1 Indonesia Car tires 2 PT. Goodyear Indonesia Car tires 3 PT. Gajah Tunggal Tbk Car tires Motorcycle tires 4 PT. Sumi Rubber Indonesia Car tires and motorcycle tires 5 PT. Industri Karet Deli Motorcycle tires 6 PT. Elang Perdana Motorcycle tires Tyre Industry 7 PT. Suryaraya Rubberindo Motorcycle tires Industries 8 PT. Banteng Pratama Motorcycle tires Rubber Co 9 PT. Hung A- Indonesia Motorcycle tires 10 PT. Unitsed Kingland Motorcycle tires Company Ltd 11 PT. Surabaya Kencana Motorcycle tires Tyre Industry 12 PT. Multistrada Arah Motorcycle tires Sarana Tbk Sources : APBI Table--2 Development of Indonesia's tire production, 2006-2010 Year Production Growth (million units) 2006 40.01 -- 2007 42.32 5.8 2008 42.84 1.2 2009 39.19 -8.5 2010 49.60 26.8 Average Growth 6.3 Sources : APBI Table--3 Sales of car tires, 2006-2010 (Million units) Year Domestic Exports Total OEM Replacement 2006 1.6 4.21 34.2 40.01 2007 2.0 5.32 35.0 42.32 2008 2.3 10.0 30.5 42.84 2009 2.1 9.2 27.9 39.19 2010 3.9 10.6 35.1 49.60 Sources : APBI Table--4 Tire production by types, 2009 and 2010 Year 4-wheeler Change (%) 2-wheeler Change (%) (million units) (million units) 2009 39.19 28.4 2010 49.60 26.6 40.5 42.6 Sources : APBI/Data Consult Table--5 New tire industry projects and expansion licensed by BKPM, 2008-2011 Companies Status Locations New factories : PT. Hankook Tire Indonesia PMA Cikarang, West Java Matador PMA Palembang, South Sumatra Expansion units PT. Multistrada Arah Sarana PMA Cikarang, West Java PT. Good Year Indonesia PMA Bogor, West Java PT. Gajah Tunggal PMDN Tangerang, West Java Companies Production capacity (units/day) New factories : PT. Hankook Tire Indonesia Car tires-11.5 million ban/year Matador N.a Expansion units PT. Multistrada Arah Sarana Car tires-5,000 motorcycle tires-8,000 units PT. Good Year Indonesia Car tires-4,000 units PT. Gajah Tunggal Car tires-15,000 units Motorcycle tires-46,400 units Companies Investment New factories : PT. Hankook Tire Indonesia US$ 1,2 billion Matador US$ 1,2 billion Expansion units PT. Multistrada Arah Sarana US$ 140 million PT. Good Year Indonesia US$ 54 million PT. Gajah Tunggal US$ 180 million (expansion 2008-2010) Companies Operational schedule New factories : PT. Hankook Tire Indonesia 2011 Matador N.a Expansion units PT. Multistrada Arah Sarana 2010 PT. Good Year Indonesia 2010 PT. Gajah Tunggal 2008 Sources : ICN processed Table--6 Tire SNI Types of tires SNI Passenger car tires 06-0098-2002 Light truck tires 06-0100-2002 Truck and bus tires 06-0099-2002 Motorcycle tires 06-0101-2002 Inner tubes of motor vehicles 06-6700-2002 Sources : APBI
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|Comment:||Demands for tires surge to follow fast growth of automotive industry in Indonesia, 2010.(INDUSTRY)|
|Publication:||Indonesian Commercial Newsletter|
|Date:||Apr 1, 2011|
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