Prospects of polyester fiber industry after abolition of textile quota.

The country's textile industry will face a new era with the abolition of the trade quota system in line with the rule of the World Trade Organization (WTO). Indonesian exports will no longer have quota sharer for exports to the United States, Canada, and the European Union in 2005. The country has to compete in open market with other textile producing countries. The abolition of the quota system will also provide an opportunity for the country to boost its exports of polyester fiber in the market of which the country hopes to be more competitive. The country sees little chance of gaining much in the market of textiles and garments with powerful rivals like China, India and South Korea.

Amid the opportunity, there is great challenge faced by polyester fiber producers including Indonesia with allegations of dumping and subsidy and imposition of protective measure under the safeguard mechanism allowed by WTO. The United States and the European Union, which have been the main quota market for Indonesian textiles and garments are feared to use the three measures to curb imports.

Textiles and textile products (TPT) have been the largest export earners for the country outside oil and gas. TPT industry is more important still as it is more labor intensive involving small and medium businesses. TPT industry will remain vital for the country's economic recovery.

According to the Textile Association (API), the industry has a workforce of 1.2 million. In the first 8 months of this year, TPT exports were valued at US$ 4.8 billion--down 1.4% from US$ 4.9 billion in the same period last year. According to the International Textile & Clothing Bureau (ITCP), world's TPT trade is predicted to rise to US$ 596 billion annually after the abolition of the quota system from US$ 353 billion at present. Developing nations will account for US$ 368 billion including US$ 127 billion in textiles and US$ 241 billion in textile products or garments.

Indonesia, which has expressed fear of serious decline of its textile industry, could gain from its large availability of polyester fiber basic materials after the abolition of the quota system. The resumption of the construction of the aromatic center of Trans Pacific Petrochemical Indotama (TPPI) in Tuban, East Java, therefore, is important.

The aromatic plant project will produce 500,000 tons of paraxylene a year. It will strengthen the country's textile industry in the upstream sector encouraging development of spinning, weaving and knitting industries and down stream sector including dyeing/finishing, garment making and ready made clothe industries.

The country have a number of companies operating in the upstream sector of textile industries five companies in purified terephthalic acid (PTA) industry, one in ethylene glycol industry, three in rayon fiber industry, two in nylon filament industry and 18 in polyester fiber industry. The country could emerge as a powerful textile and garment supplier to the world market by using its large factories to produce textiles and garments from rayon and other synthetic fibers, which are easily available in the country.

The country, therefore, has no cause for much concern with the abolition of the quota as it still has comparative advantage over other countries.

Description of product

Polyester is a chemical widely used as a feedstock in the production of synthetic fiber. By forms, there are five types of polyester--solution/dispersion, liquid, granule, chip, etc. In Indonesia, polyester in chip is used mainly to feed polyester fiber industry. Other types of synthetic fibers are made from acrylic, rayon, and cotton. This report, however, concerns only polyester as synthetic fiber basic material.

Polyester is produced through a reaction between ethylene glycol (EG), an olefin product, and purified terephthalic acid (PTA), an aromatic product. Through a process of polymerization, the reaction will turn out polyester chips. The chip is later processed into polyester fiber.

There are two known types of polyester fibers namely polyester staple fibre (PSF), and polyester filament yarn (PFY). Polyester staple fiber is produced to resemble the characteristic of cotton that could absorb heat that PSF is used widely as a feedstock for spun yard. PFY is used as feedstock for smooth linen that need soft and long fibers.

Polyester fiber is resistant to heat and chemicals. Polyester fiber is used as basic material for textiles and plastic bottle. Polyester fiber is also used as a basic material to produce dacron and terylene. It is processed to produce film layer known as melinex and mylar. The use of polyester fiber in laboratory is as coating material. Polyester fiber is also used as a material in the production of parachutes, tire cord and safety belts.

Process of production

Previously production of polyester synthetic fiber was made through a reaction between DMT (dimethyl terephthalate) and EG (ethylene glycol), but now a new basic material is used instead of DMT namely PTA (purified terephthalic acid), which is considered more efficient. Now, almost all producers of polyester fiber use PTA and EG as the basic materials.

There are two types of process to produce polyester synthetic fiber--through batch process and continuous process. Under batch process the process of producing monomer and polymerization is by phases from esterification to be followed with polymerization. Another process is continuous process from estertification to polymerization.

The process of producing filament could be through direct spinning, namely molten polyester as a product of polymerization directly pumped into spinning beam and through gear pump sprayed through spinneret, and then cooled down with air into filament. Another process is molten polyester turned out in the forms of sheet or strand, and is cooled down with air and then cut into chips. The chips are then dried and processed into molten polyester under an extruder machine. The molten polymer is then processed in a spinning machine.

Total production capacity for polyester fiber 1.53 million tons a year

There are at least 18 producers of polyester fiber in the country with a total annual capacity of 1.53 million tons consisting of polyester staple fiber (PSF) making up 639,020 tons and polyester filament yarn (PFY) 895,644 tons a year. Twelve of the companies have polymerization units to produce polyester chips with a total capacity of 1.09 million tons a year. The production capacity increased sharply following the completion of the expansion unit of GT Petrochem Industries, and the operation of new producers PT Pacific Fibre Corp. and PT Kohap Indonesia.

PT Pacific Fibretama Corp. has an annual production capacity of 13,500 tons of polyester chips and 86,500 tons of PSF. The PMDN company is 50% owned by PT Tirtamas Majutama, and 50% by PT Mulia Gahara. Its factory is located in Serang built with an investment of Rp 360 billion. PT Kohap Indonesia is a PMA as a joint venture between Kohap Ltd. of South Korea, and Kohap Ltd. of Hong Kong. Its factory was built in Karawang, West Java with an investment of US$ 76.4 million.

Five of 16 polyester producers are publicly listed companies--PT Indorama Synthetics (Indorama Group), PT Polysindo Eka Perkasa (Texmaco Group), PT GT Petrochem Industries (Gajah Tunggal Group), PT Tifico and PT Panasia Indosynthec.

PT Indo Rama Synthetics is one of major producers of polyester chips. The PMA company has an annual capacity to produce 143,850 tons of polyester chips, 61,200 tons of PSF and 91,800 tons of PFY. The factory, which is located in Purwakarta, West Java, started operation in 1992. In the beginning the company had only a spinning production unit. In 1995, PT Indo Rama Synthetics, apart from synthetic polyester, started producing PET resin with an annual capacity of 60,000 tons. The publicly listed company under the Indo Rama group, is 17.35% owned by Brookgrange International Finance Ltd., 47.37% by PT Irama Unggul, 4.62% by International Finance Corporation and 30.66% by investing public.

PT Polysindo Eka Perkasa (PEP) is the largest producer of polyester in the country Its factory is integrated with PTA production facility. PEP, which is owned by the Texmaco Group was hit hard by the crisis that left trapped in a non performing debt of Rp 2.39 trillion to the bank rescue agency IBRA.

After expansion, the company had an annual capacity to produce 330,400 tons up from 50,400 tons earlier, 131,950 tons of polyester fiber, up from 7,200 tons earlier. In addition PEP started operating its PTA plant in 1997 with an annual capacity of 340,000 tons. PTA is a basic material for polyester. Most or 278,800 tons of its PTA production is used to feed its polyester chip production unit. Most or 270,000 tons of its production of 280,000 tons of polyester chips are processed into PSF including 180,000 tons in its Karawang plant and 90,000 tons in its Kaliwung plant in Kendal, Central Java.

PT GT Petrochem Industries (GTPI), which is owned by the Gajah Tunggal Group has two polyester factories--in Tangerang and Karawang. Its factory in Tangerang has an annual capacity of 108,000 tons of PC, 43,800 tons of PFY and 64,200 tons of PSF. After the completion of its expansion unit in Karawang its production capacity rose to 210,000 tons of PC, 85,750 tons of PSF and 107,800 tons of PFY a year. GTPI uses the technology of Zimmer Aktiengesellschaft of Germany.

In the beginning the company with the name of PT Andayani Megah produced only nylon and rayon tyre cords. Later the company sought to diversify products by acquiring petrochemical companies including PT Prima Ethycolindo (the only producer of ethylene glycol in the country), PT Gemapersada Polimer (polyester polymer producer) and PT Berinda Mintra Stafindo (a PSF producer). In addition, GTPI has also acquired PT Filamendo Sakti (a producer of nylon tyre cord) and PT Sentra Sintetikajaya (a producer of SBR).

PT Sun-Kyong Keris Indonesia, a PMA company and subsidiary of the Batik Keris Group. PT Sun Kyong Keris Indonesia (SKI), which started operation in 1993, has a factory in Tangerang, Banten. SKI has an annual capacity to produce 59,500 tons of polyester chips and 78,475 tons of PFY. The jopint venture company is jointly owned by PT Rempoa Filament and Sun-Kyong Industry Ltd. and Sun-Kyong Ltd. from South Korea.

PT Poly Fibre Industry (Polyfin) started operation in 1993 to produce polyester fiber. The company is jointly owned by Arto Hardy and Tan King Lie each holding 50% of the shares. The company has an annual capacity to produce 43,750 tons of polyester chips and 76,650 tons of PFY. Its factory is located in Sumedang, West Java.

PT Panasia Indosyntec, originally named PT Hadtex Indosyntec, started operation in 1973 with factory located in Bandung. In addition to polyester fiber the company produces fancy gingham fabrics with an annual capacity of 2 million meters and fancy ladies fabrics with an annual capacity of 5 million meters through its subsidiary PT Panasia Filament Inti. The company went public in 1990. It is owned by the Hidjaja brothers, PT Panasia Synthetic Abadi and investing public.

PT Indonesia Toray Synthetics is a PMA jointly owned by Toray Industries Inc., Mitsui & Co. Ltd., from Japan and local partners PT Easterntex and Bank Nomura Japco Indonesia. The company started operation inn 1971 producing PSF and PFY. In 1991, its started producing nylon filament yarns. Its factory is located in Tangerang, designed to produce polyester chips with an annual capacity of 36,000 tons, PSF with a capacity of 62,220 tons and PFY 14,620 tons.

PT Teijin Indonesia Fibre Corporation (Tifico) .is a joint venture between Indonesia and Japan with the status of PMA. The company started operation in 1976 and it was listed and became a public company in 1980. It is owned 65.8% by Teijin Limited of Japan, 16.5% by Toyo Menka Kaisha Ltd. of Japan, 13.2% by PT Danareksa and 4.5% by investing public. Its factory is located in Tangerang, Banten, with an annual capacity to produce 91,000 tons of polyester chips, 84,600 tons of PSF and 75,600 tons of PFY.

PT Global Fiberindo is also a PMA company owned by investors from South Korea--Jung Nam Choi, Tal Yul Yi and Kyung Chul Lee. Its factory is located in Tangerang built with an investment of US$ 5 million. It has an annual capacity to produce 12,000 tons of PSF.

PSF and PFY production capacity

The country's production capacity for PSF and PFY tended to increase from 1999 to 2003 with some producers expanding their capacity. The PSF production capacity rose from 450,000 tons in 1999 to 540,520 tons in 2003. In the same period the PFY production capacity rose form 825,840 tons to 895,644 tons a year. The production, however, has fluctuated and tended to decline. In 2003, the production of the two materials declined because of falling buying power of the people.

Production down by 2.6% annually

In the past five years, altogether the production of polyester fiber dropped by 2.6% annually on the average--from 971,750 tons in 11999 to 868,083 tons in 2003.

Investment interest low

In the period from 2002 to Sept, 2004, the capital investment coordinating board (BKPM) issued new license only to a new project in the polyester sector namely to PT Woongdo Fiberindo. The PMA company planned to build a PSF plant with an annual capacity of 7,500 tons and with an investment of US$ 1 million. The factory is to start operation in January, 2006.

Projected Production

As already said the country's production of polyester fiber declined by 2.6% a year in 1999-2003. The PSF and PFY industries operated only at 57% of their installed capacity of 1.53 million tons in 2003.

Indonesia has the potential to become a major exporter of polyester fiber. An increase in exports will boost production of PSF and PFY. Therefore, the capacity utilization is predicted to rise to 60% The capacity utilization is expected to rise further to 70% in 2005 to 80% in 2006, to 90% in 2007 and to 95% in 2008. Based on that prediction, production will rise from 918,000 tons in 2004 to 1.45 million tons in 2008.

Estimate of consumption of ethylene glycol (EG) and PTA

Polyester fiber has been produced mainly with PTA (purified terephthalic acid), and MEG (mono ethylene glycol) as the basic materials. Polyester chips are produced through esterification and poly-condensation of the basic materials. Factories not having polymerization facility will buy polyester chips from producers or through imports

With an annual capacity of 1.81 million tons a year, the country is no longer dependent on import for PTA. A ton of polyester chip will need 0.858 ton of PTA.

The other basic material ethylene glycol (EG) is produced only by PT Prima Ethycolindo (formerly Yasa Ganesha Pura), a subsidiary of PT GT Petrochem Industries, with an annual capacity of 216,000 tons.

The country, therefore, is still heavily dependent on import for EG. A ton of polyester chip will need 0.338 ton of EG, Based on that ratios, consumption of both PTA and EG for polyester chips could be estimated.

Imports of polyester fiber fluctuating

Imports of PSF and PFY declined from 52,649 tons valued at US$41.7 million in 1999 to 37,112 tons valued at US$ 40.4 million in 2003. Imports of polyester are dominated by the types needed in TPT industry.

Exports of polyester fiber valued at US$ 129.7 million

The country has exported part of polyester fiber production. In 1999-2003, exports rose from 105,316 tons valued at US$ 90.2 million to 124,419 tons valued at US$ 129.7 million. PSF and PFY exports were equal in volume.

The European Union earlier imposed anti dumping sanction on synthetic yarns from Indonesia. The sanction ended in 2001. The European Union has become the main market of the country's yarns and synthetic yarn. The anti dumping duty, however, made the country's products less competitive facing competition from other products mainly from China and Taiwan even from Saudi Arabia, new producer.

The surcharge imposed by the EU ranged from 8.4% to 15.8%. The companies meted out with the sanction included Indorama (8.4%), Panasia (14.8%), Tifico, GT Petrochem and Sulindafin each with 14% anti dumping import duty, Tri Rempoa, Kumafiber, Indo Toray Syntheitics and Polysindo each 15.8% added to 10% anti subsidy import duty.

Apsyfi said the country suffered a potential loss of US$ 62 million a year in exports to the EU.

The TPT Industry Director at the Industry and Trade Ministry Luky Hartini said after the abolition of the quota system in January, 2005, countries of destination are expected to impose lower import duties on natural fiber based TPT compared with those made of polyester fiber. The import duties on Indonesian TPT in the United States are higher as the country's TPT is made mainly of pure polyester fiber. IN addition, the United States adopts the weighted import duty mechanism. The import duty will be lower if polyester is blended with natural fiber such as cotton. The United States is interested in protecting its polyester fiber industry

India the largest buyer

Polyester fibers have been exported to a number of countries. In 2003, the largest buyer was India to which exports totaled 19,236 tons valued at US$ 12.9 million of PSF and 24,947 tons valued at US$ 23.5 million of PFY. Other major buyers included China, to which exports totaled 12,588 tons valued at US$ 8 million. See the following table.

Consumption down 4% a year

PSF and PFY are the main types of synthetic fibers used in the country. Based on assumption that consumption is equivalent to local production plus import minus export, the domestic consumption declined by 4% a year in the 1999-2003 period from 919,083 tons to 780,776 tons. The decline followed the crisis that hit the country's economy since 1997.

Projected consumption

In the coming years consumption of polyester fibers is predicted to increase to follow the progress made toward economic recovery and improvement of the world economy. Improvement of the world economy will boost the country's production of TPT and as a result demand for basic materials including polyester fibers will increase. Based on that prediction, the country's consumption of polyester fiber is expected to rise 5% annually in 2005 and 2006 and by 8% in 2007 and 2008.

Consumption of polyester chips, therefore will rise from 820,000 tons in 2004 to 1.06 million tons in 2008.

Prospects and conclusion

With limited capacity to produce cotton fiber, the country is concentrating more on strengthening its synthetic fiber industry especially polyester fiber industry. Per capita consumption of polyester fiber in the country is still low compared with in many other countries.

In the past three years there was a decline in consumption of polyester fiber marking the decline of the country's TPT industry. The trend indicated a shift in the use of polyester fiber to other types of fiber notably with the decline in the price of cotton expected to continue through 2005. The decline in cotton price will make it easier for TPT producer to combine polyester and cotton as yam basic materials. However, demand for polyester fiber especially for PSF is predicted to continue to increase as polyester remains dominant as a basic material for yams in the country.

Therefore, demand for polyester fiber is predicted to continue to rise in the next five years. In the coming year, the country is still expected to have exportable surplus in supply of polyester fiber as the production capacity still exceeds domestic consumption.

Table--1

Producers of polyester chips, PSF & PFY and
their production capacity, 2003

(Ton/year)

        Name of company             Status    Location

Pacific Fibretama Corp, PT          PMDN      Serang
Kohap Indonesia, PT                 PMA       Karawang
Indonesia Toray Synthetics, PT      PMA       Tangerang
Kumafiber, PT                       PMA       Tangerang
Polysindo Eka Perkasa, PT           PMDN      Karawang
GT Petrochem Industries, PT         PMDN      Tangerang
                                              & Karawang
Sulindafin, PT                      PMDN      Tangerang
Texmaco Taman Synthetics, PT        PMDN      Kendal
Teijin Indonesia Fiber Corp., PT    PMA       Tangerang
Panasia Indosyntec, PT              PMDN      Bandung
Indo Rama Synthetics, PT            PMA       Purwakarta
Sun-Kyong Keris Indonesia, PT       PMA       Tangerang
Poly Fibre Industry, PT             PMDN      Sumedang
Vastex Prima Industries, PT         PMDN      Bandung
Central Filament Mills, PT          PMDN      Bandung
Multikarsa Investama, PT            PMDN      Kendal
Mutugading, PT                      PMDN
Global Fiberindo, PT                PMA       Tangerang
Total

        Name of company                   Production Capacity

                                    Polyester      PSF        PFY
                                      chips

Pacific Fibretama Corp, PT             13,500     86,500         --
Koha Indonesia, PT                         --         --     29,164
Indonesia Toray Synthetics, PT         36,000     62,220     14,620
Kumafiber, PT                          19,250     17,500         --
Polysindo Eka Perkasa, PT             330,400    131,950    217,000
GT Petrochem Industries, PT           210,000     85,750    107,800

Sulindafin, PT                         54,000     27,000     30,240
Texmaco Taman Synthetics, PT               --         --     27,300
Teijin Indonesia Fiber Corp., PT       91,000    122,500     73,500
Panasia Indosyntec, PT                 70,000     32,400     50,400
Indo Rama Synthetics, PT              143,850     61,200     91,800
Sun-Kyong Keris Indonesia, PT          59,500         --     78,475
Poly Fibre Industry, PT                43,750         --     75,600
Vastex Prima Industries, PT                --         --     12,950
Central Filament Mills, PT                 --         --     14,235
Multikarsa Investama, PT                   --         --     54,950
Mutugading, PT                             --         --     16,560
Global Fiberindo, PT                       --     12,000         --
Total                               1,091,050    639,020    895,644

Note : PSF-- Polyester staple fibre

PFY--Polyester filament yarn

PC--Polyester Chips

Source : Apsyfi/Data Consult

Table--2

PSF and PFY production capacity and production, 1999-2003

Year     Production     Production    Growth
        Capacity PSF      (Ton)        (%)
         (Ton/Year)

1999         450,000       401,890        --
2000         495,835       421,305       4.8
2001         507,835       439,875       4.4
2002         537,020       468,630       6.5
2003         639,020       426,070      -9.1
Average growth (%)                       1.6

Year     Production     Production    Growth
          Capacity        (Ton)        (%)
            PFY
          Ton/Year

1999         825,840       569,860        --
2000         815,065       559,087      -1.9
2001         815,065       524,311      -6.3
2002         899,558       490,202      -6.6
2003         895,644       442,013      -9.9
Average growth (%)                      -6.1

Source: Apsyfi/Data Consult

Table--3

Production of polyester fiber, 1999 - 2003

(Tons)

Year               Production                Change

        PSF         PFY         Total          %

1999     401,890     569,860     971,750         --
2000     421,305     559,087     980,392        0.9
2001     439,875     524,311     964,186       -1.7
2002     468,630     490,202     958,832       -0.1
2003     426,070     442,013     868,083       -9.5
Average growth                                 -2.6

Source: Apsyfi/Data Consult

Table--4

New projects in polyester synthetic fiber industry,
2002-2004 *)

Name of company          Status    Location    Investment    Production
                                                  (US$        Capacity
                                                Million       Ton/Year

Woongdo Fiberindo, PT    PMA       Serang      1.0           PSF--7,500

Name of company           BKPM
                         Approv
                           al

Woongdo Fiberindo, PT    Jan
                         2004

PSF--Polyester staple fibre; Source: Data Consult

Table--5

Projected production of polyester synthetic fiber,
2004-2008

Year    Projected Production ('000 Ton)

2004                                918
2005                              1,070
2006                              1,220
2007                              1,380
2008                              1,450

Source: Data Consult

Table--6
Estimated consumption of PTA and EG for polyester chips,
1999-2003

                                       (Tons)
Year   Production           Consumption
       Polyester chips   PTA           EG

1999        1,068,925    917,137      361,296
2000        1,078,431    925,294      364,509
2001        1,060,605    909,999      358,484
2002        1,054,715    904,945      356,494
2003        954,891      819,296      322,753

Source: Data Consult

Table--7

Imports of polyester fibers,
1999-2003

Tons
(US$'000)

Year    Polyester staple      Polyester      Total
          fiber (PSF)       filament yarn
                                 PFY

1999         48,679             3,970        52,649
             36,128             5,593        41,721
2000         64,010             4,450        68,460
             57,598             9,642        67,240
2001         46,622             4,361        50,983
             39,971            10,540        50,511
2002         34,503             5,524        40,027
             27,400            13,403        40,803
2003         32,543             4,569        37,112
             30,415            10,023        40,438

Source: CBS/Data

Table--8

Exports of polyester fibers, 1999-2003

Tons
(US$'000)

Year    Polyester staple fiber    Polyester filament    Total
                (PSF)                yarn (PFY)

1999            39,134                  66,182         105,316
                25,716                  64,504          90,220
2000            44,627                  95,356         139,983
                34,821                 110,682         145,503
2001            45,441                  95,974         141,415
                32,726                 103,906         136,632
2002            94,549                 104,696         199,245
                67,414                 106,931         174,345
2003            61,527                  62,892         124,419
                53,749                  75,960         129,709

Source: CBS/Data Consult

Table--9

Exports of polyesters fibers
by countries of destination, 2003

Tons
(US$'000)

Count of destination     2003

PSF:

India                    19,236
                         12,933
Hong Kong                 7,760
                          6,231
China                    12,588
                          8,034
Pakistan                  2,080
                          1,258
Thailand                  4,366
                          3,176
Bangladesh                6,097
                          4,475
Iran                      2,134
                          1,618
Egypt                     6,159
                          4,479
Australia                 5,552
                          3,573
United States             3,544
                          2,548
Germany                   2,666
                          1,560
Others
Subtotal                 61,527
                         53,749

PFY:

Japan                     8,275
                         12,388
South Korea               2,399
                          2,810
China                     4,570
                          3,865
India                    24,947
                         23,554
Thailand                  6,526
                          5,984
Pakistan                  5,644
                          5,802
Syria                     3,110
                          2,632
Turkey                    7,023
                          6,858
Brazil                    3,758
                          4,739
United States             6,906
                          7,443
Others
Subtotal                 62,892
                         75,960
Total                   124,419
                        129,709

Source: CBS/Data Consult

Table--10

Estimated consumption of synthetic polyester,
1999-2003

(Tons)

Year   Production    Import     Export    Consumption   Growth
                                                           (%)

1999       971,750     52,649   105,316       919,083         --
2000       980,392     68,460   139,983       908,869       -1.2
2001       964,186     50,983   141,415       862,798       -5.1
2002       958,832     40,027   199,245       799,614       -7.4
2003       868,083     37,112   124,419       780,776       -2.4
Average growth (%)                                          -4.0

Source: Data Consult

Table--11

Projected consumption of synthetic polyester,
2004-2008

Year    Projected consumption
             (000 Tons)

2004                       820
2005                       860
2006                       910
2007                       980
2008                     1,060

Source: Data Consult

Table--12

Projected production and consumption
of polyester fibers, 2004-2008

Year      Projected ('000 Tons)      Balance

       Production     Consumption

2004           918             820         98
2005         1,070             860        210
2006         1,220             910        310
2007         1,380             980        400
2008         1,450           1,060        480

Source: Data Consult