RUBBER DOWNSTREAM INDUSTRY DEVELOPMENT IN INDONESIA: CURRENT STATUS, OPPORTUNITIES AND CHALLENGES Nelly Rahman and Uhendi Haris Bogor Research Center for Rubber Technology Indonesian Rubber Research Institute ABSTRACT Indonesia is the second largest natural rubber producer in the world with potential area for 3.4 million hectares and production of 2.9 million tons in 2008. Domestic consumption of natural rubber in Indonesia is still very low although continue to increase with significant growth rate 15.6 % per year in the last decade (2000-2008). In 2008, domestic consumption was 414 thousand tons accounted 15 % of the total production, of which about 65 % was consumed by tyre industry. Actually, rubber goods have a large market potential. Although, rubber goods produced and exported by Indonesia are still limited, more exported in raw material. The big potential of raw materials and the availability of extensive market led to the increasing the added value of natural rubber. This opportunities should be optimized to encourage the growth of rubber downstream industries. Development of downstream rubber industry in addition to increasing the added value, also can increase the consumption of natural rubber in the country, reducing imports of rubber goods, increase employment opportunity and foreign exchange savings. In Indonesia, there are 218 rubber goods industries both small and big industries. Rubber goods industries in Indonesia are generally classified into several groups depending on the type of product, i.e. tires (cars, motorcycles and bicycles), rubber goods for industry and automotive parts (conveyor belts, automotive components, etc), latex goods (gloves, condoms, rubber threads, balloons, etc) and general-purpose rubber goods (carpets, footwear, sports goods, household. The growth of rubber downstream industry in Indonesia is generally quite significant. Last 6-7 years showing the balance of exports and imports is always positive. The rate of foreign exchange export earnings averaged 23 %, with foreign exchange earnings of about US$ 1.2 billion, an increase of almost 2 time in the last 5 years. Positive trade balance is always achieved from the tyre industry and other industries that require a lot of natural rubber. But for the rubber goods industry with the main raw material of synthetic rubber, Indonesia still needs a lot of imports, so that the negative trade balance, such as conveyor belts industry. Rubber Government-owned Company (PT Perkebunan Nusantara / PTPN) has long been in the national agro upstream industry. This company has a mission to develop the downstream rubber industry in an effort to increase the added value of national rubber industry and profitability. Rubber products which have been mostly exported in raw material, is expected to be used or processed into raw materials for rubber downstream industries managed by PTPN. At the moment there are several government-owned companies that have and are developing rubber goods industry. Based on studies that have been done, there are four types of prospective industries to be built by PTPN, namely the motorcycle tyre industry, gloves, rubber threads and conveyor belts. The development of rubber downstream industries can be implemented through two approaches, i.e. the establishment of a new rubber downstream industries and revitalization of existing industries. Keyword: natural rubber, rubber goods, rubber downstream industry 1
I. INTRODUCTION Natural rubber is one of the great economic and social function for Indonesia, and no doubt for environment conservation. Estate crops commodity provided significant contribution to GDP (Gross Domestic Product) of agricultural sector, and rubber industry plays a significant role in this regard. Rubber export earning in 2008 accounted for US$ 6.057 billion or about 26% of estate crops export value. Viewed from the aspect of usefulness, rubber commodities have a variety of uses, both for tyre industry and related products as well as gloves, rubber thread, rubber goods for the automotive industry, footwear industry, automobile industry / aircraft, medical needs, the property / building and pharmaceutical. In addition, rubber wood can be processed into high value products, such as processed wood products (MDF = Medium Density Fiber), molding, particle board), wood floors (parquet block), components of furniture, tabletop and other household items. Domestic consumption in Indonesia in 2008 was 414 thousand tons accounted 15.0 % of the total production, of which about 65 % was consumed by tyre industries. Other major domestic end users consist of rubber product industries namely: tyre retreading, footwear, conveyor belts, hoses, dock fender, other industrial rubber product, household and sport goods. The big potential of raw materials and the availability of extensive market led to the increasing the added value of natural rubber. This opportunities should be optimized to encourage the growth of downstream industries of rubber. Development of rubber downstream industry in addition to increasing the added value, also can increase the consumption of natural rubber in the country, reducing imports of rubber goods, increase employment and foreign exchange savings. II. CURRENT STATUS OF RUBBER DOWNSTREAM INDUSTRY IN INDONESIA Indonesia has the largest area planted to rubber and has been the second biggest natural rubber producer after Thailand. In 2008, the rubber plantation is covering an area of 3.4 million hectares, the world largest planted areas under rubber, spread over more than 15 province. The total production in the same year for 2.9 million tons or contributed 29 % of total world production of natural rubber (9.87 million in 2008. Around 85 % of total rubber plantation belongs to smallholders occupying more than 2 million households and the rest of around 15 % by large estates owned by private estates (8 %) and government-owned estate/pt Perkebunan Nusantara (7 %). The production of natural rubber steadily increased in meeting both the world and domestic demand, before the global financial crisis occurred. The share of Indonesia s production to the total world s production increased from 22.29 % in 2001 to 27.97 % in 2008 (Table 2.1). The average production growth rate from 2002 2007 was 9.5%, dropped (-) 0.2 % in 2008, as shown in Figure 2.1 2
Table 2.1. Indonesian rubber planted areas, production and consumption, 2001 2008 Item 2001 2002 2003 2004 2005 2006 2007 2008 Area (000) ha 3345 3318 3290 3262 3279 3309 3414 3433 Production (000) tons (Share of the world) (%) 1607 (22.29) 1630 (22.83) 1792 (23.27) 2066 (23.97) 2271 (25.25) 2637 (27.20) 2755 (27.85) 2751 (27.87) Export (000) tons 1452.7 1497.3 1660.9 1874.3 2023.8 2286.0 2406.7 2295.5 Value (Million 782.1 1038.9 1493.5 2180 2582.5 4320.7 4868.7 6056.6 Domestic Consumption (000) tons 142 145 156 196 221 355 391 414 18 16 14 12 10 8 6 4 2 0-2 2002 2003 2004 2005 2006 2007 2008 Figure 2.1 Annual grown of production in Indonesia In 2008, Indonesia total exports of raw rubber reached 2.29 million tons worth US$ 6.05 billion. Most of these exports (93.6%) is the type of Standard Indonesian Rubber (SIR) as shown in Table 2.2. Among them SIR 20 is the major grade requested by tyre industry. Table 2.2. Indonesia rubber export by type and grade, 2002 2008 Type and Grade 2002 2003 2004 2005 2006 2007 2008 Latex Concentrate Ribbed Smoked Sheet Standard Indonesian Rubber (Technically Specified Rubber) 8,637 12,526 11,755 4,014 8,334 7,610 8,547 (0.58 %) (0.75 %) (0.63 %) (0.20 %) (0.36 %) (0.32 %) (0.37 %) 44,194 46,165 145,895 334,125 325,393 275,497 137,755 (2.95 %) (2.78 %) (7.78 %) (16.51 %) (14.23 %) (11.45 %) (6.00 %) 1,437,104 1,589,387 1,684,959 1,674,721 1,952,268 2,121,863 2,148,449 (95.98 %) (95.69 %) (89.90 %) (82.75 %) (85.40 %) (88.16 %) (93.60 %) 7,356 12,842 31,652 10,921 3.0 1,786 706 Other types of NR (0.49 %) (0.77 %) (1.69 %) (0.54 %) (0.00 %) (0.07 %) (0.03 %) TOTAL 1,497,291 1,660,920 1,874,261 2,023,781 2,285,967 2,406,756 2,295,456 3
T hou sands Indonesia average natural rubber export growth rate until 2007 was 10%, from 1.5 million tons in 2002 increased to 2.41 million tons in 2007. However there was a negative growth rate at (-)4.6 % in 2008, declined to 2.30 million tons, due to low demand caused by impact of global financial crisis (Figure 2.2). 3,000 2,500 2,000 1,500 1,000 500 0 2003 2004 2005 2006 2007 2008 Figure 2.2 Export performance of Indonesian Natural Rubber, 2003 2008 Rubber goods industry in Indonesia are generally classified into several groups depending on the type of product as follows: a. Tyre (bicycle, motorcycles, passenger cars, light trucks, buses, aircraft, heavy vehicles) and related products (inner tube, valves, etc.) b. Engineering rubber goods for industry and automotive: conveyor belts, automotive component, electronic component, bearing. c. Latex goods: glove, condom, rubber thread, balloon, spignomanometer, catheter, latex foam. d. General rubber goods: carpet, footwear, sports goods, household. In Indonesia, there are 218 rubber goods industries both small and big industries, consisting of 19 motorcycle and car tyre industries, 7 bicycle tyre industries, 56 engineering rubber good industries, 51 latex good industries, 85 general rubber goods industries. The growth of rubber downstream industry in Indonesia is generally quite significant. Last 6-7 years showing the balance of exports and imports is always positive as shown in Table 2.3 and Figure 2.3. The rate of foreign exchange export earnings averaged 23 %, with foreign exchange earnings of about US$ 1.2 billion, an increase of almost 2 time in the last 5 years. Positive trade balance is always achieved from the tyre industry and other industries that require a lot of natural rubber. But for the rubber goods industry with the main raw material of synthetic rubber, Indonesia still needs a lot of imports, so that the negative trade balance, such as conveyor belts industry. Table 2.3 shows that generally export of rubber goods for last 5 years increase. Exports of rubber goods generally good growth in terms of export volume and value. Export growth rates are generally higher than import growth. However, in terms of each type of 4
Million US$ product, there are several rubber products so that the negative trade balance as tubes, pipes, hoses and conveyor belt (Table 2.4) Table 2.3 Export-import balance of rubber goods in Indonesia, 2003 2007 2003 2004 2005 2006 2007 *) +/- (03-06) Vol Value Vol Value Vol Value Vol Value Vol Value Vol Value (%) (%) Export 282 568 371 757 383 935 416 1126 458 1274 13 23 Import 101 229 90 239 105 328 106 390 142 404 10 16 Balance 181 340 281 518 278 608 310 735 316 870 1400 1200 1000 800 600 400 200 0 Export Balance Import 2003 2004 2005 2006 2007 Year Type Figure. 2.3 Rubber goods trade balance Table 2.4 Rubber goods trade balance, 2006 2008 2006 2007 2008 Export Import Balance Export Import Balance Export Import Balance Industrial rubber goods: Rubber threads Tubes, pipes, hoses 17,5 22,4 1,0 51,1 16,5 (28,7) 16,6 3,7 2,5 39,8 14,1 (36,1) 14,0 3,1 3,3 41,5 11,7 (37,4) Conveyor belts 3,0 22,2 (19,2) 4,5 25,5 (21) 3,1 25,9 (22,8) Transmission belts 44,9 13,6 31,3 41,0 16,3 31,5 44,7 18,1 24,5 Tyre (car, motorcycle, bicyle) 766,4 198,0 568,4 973,5 781,5 192,0 1,068 18,4 109,6 gloves 152,1 3,9 148,2 163,7 4,3 158,4 211,7 10,3 201,4 others 109,2 271,1 (161,9) 297,6 222,1 75,5 126,9 125,1 1,8 Currently, there are 10 government-owned companies and 1 a subsidiary company which runs business on rubber commodity: PTPN I, PTPN II, PTPN III, PTPN V, PTPN VII PTPN VIII PTPN IX, PTPN XII, PTPN XIII PTPN XIV, and PT Rajawali Nusantara Indonesia (RNI). Among the 11, only PTPN III, PTPN V, PTPN IX, PTPN XIII, and PT RNI ever and 5
is developing rubber goods industry. PTPN III develop the rubber goods industry through its subsidiary, PT Industri Karet Nusantara (PT IKN), PTPN V and PTPN XIII through PT Agrintara, and PT RNI through its subsidiary PT Mitra Rajawali Banjaran (PT MRB). Types of rubber goods produced by PTPN are presented in Table 2.5. Table 2.5 Rubber downstream industry owned by government-owned plantation company Company Subsidiary company Product PTPN III PT IKN Rubber articles Master batch Rubber thread Resin PT RNI PT MRB Condom Disposable syringe PTPN V and PTPN XIII share with private company PT Agrintara Conveyor Belts III. OPPORTUNITIES Population and economic growth are the key factors supporting the increase in rubber consumption. National economic recovery will have a positive impact on rubber product consumption. In conjunction with clean environmental campaign, people are now tending to prefer natural-based products. Business of natural rubber will continue to grow and sustainable because it supported a variety of factors including: the use of natural rubber in line with population growth and the raw materials are renewable. Table 2.3 shows that export of rubber goods generally good growth in terms of export volume and value. Export growth rates are generally higher than import growth. However, in terms of each type of product, there are several rubber products so that the negative trade balance. Positive trade balance is always achieved from the tyre industry and other industries that require a lot of natural rubber. But for the rubber goods industry with the main raw material of synthetic rubber, Indonesia still needs a lot of imports, so that the negative trade balance, such as conveyor belts industry (Table 2.4). In Table 2.6 shows the growth of synthetic rubber imports used as raw material of rubber products mainly for spare parts for motor vehicles and industry. From these data prove that the automotive industry and other industries in Indonesia is growing and is likely to continue to grow. Recently, the types of rubber products produced and exported by PTPN still limited, and still dominated by raw materials. The added value is significant can be obtained if able to produce rubber goods that have high value/high price and relatively stable. The data shown that the price of raw material of natural rubber as a raw material is very fluctuate, on the other hand rubber goods prices are relatively stable and even tends to increase. This opportunity is caught by PTPN by planning to build new industries or developing the existing rubber downstream industries to obtain added value or higher profitability. 6
Table 2.6 Import of synthetic rubber Type 2006 Jan-Nov Jan-Nov Change 2007 2008 (%) SBR 62,746.4 59,190.0 93,335.9 57.7 BR 42,254.1 38,780.9 50,148.9 29.3 IIR 12,050.0 10,971.1 16,503.5 50.4 CR 4,831.9 4,444.7 5,156.9 16.0 IR 1,119.4 1,066.2 1,244.5 12.8 NBR 3,221.7 2,856.9 9,539.7 133.9 EPDM 5,525.3 5,025.7 8,133.3 61.8 Others 2,780.1 2,549.2 3,615.9 41.8 Total 134,528.9 125,158.5 187,678.6 IV. CHALLENGING Business of government-owned plantation company (PTPN) may be more developed and sustainable when integrating the upstream industry with downstream industries that have high added value. Balance of exports and imports as shown in Table 2.3 used to analyze the products to be developed prospectively. The products with negative export-import balance likely to be developed for import substitution. Meanwhile, the products with positive exportimport balance to be developed in order to increase the export value. Based on the analysis of export and import performance products that are likely to be developed by PTPN is a motorcycle tyre, gloves, rubber threads, conveyor belts, car tyre, rubber hoses and pipes. Development of government-owned rubber downstream industry have two target programs, namely the development of new downstream industries and the revitalization of rubber downstream industries that already exist. Both program are deemed necessary to focus on the types of industries considered most prospective. According to the result of analysis in the downstream industry development program of new rubber goods, the first priority is the motorcycle tyre industry. Motorcycle tyre industry is an industry with capital-intensive characteristics and with the level of sophisticated technology estimated relevant to the choice of downstream industries which should be built by a consortium of government-owned plantation company. In the downstream industry revitalization program, the selected industry are gloves, rubber threads and conveyor belts. Other industries are still allowed to be strengthened as far as production facilities can be updated and or her needs met. In terms of improving management and marketing is necessary to improve the knowledge and skills of human resources in the technology, equipment and marketing network; and the application of cost leadership strategy in the production system to be able to penetrate the market and compete in highly competitive markets. CONCLUSION - Population growth and recovery of the Indonesia economy will have a positive impact on business including business on rubber products. - Awareness of people on environment leads to increase in the use of natural-based products. 7
- Positive prospect on rubber business has to be responded quickly in order to catch up the opportunity. - By improve the knowledge and skills of human resources in the technology, equipment and marketing network, a significant increase in contribution to the company s revenue could be expected. REFERENCES Bastari, D.H. dan S. Honggokusumo, 2009. Strategi Pengembangan Riset, Industri Karet dan Produk Karet Nasional. Direktorat Industri, Iptek dan BUMN Bappenas Meeting. Nikko Hotel, 23 June 2009. Departemen Perindustrian, 2006. Peluang dan Promosi Investasi Barang-Barang Karet, The Ministry of Industry, Jakarta, Indonesia Direktorat Jenderal Perkebunan. 2009. Statistik Perkebunan Indonesia: Karet 2007-2009, The Ministry of Agriculture, Directorate General of Plantation, Jakarta, Indonesia Muluk C. et. al. PTPN III Rubber Downstream Industry: Current Status and Future Development, Proceeding International Rubber Conference & Exhibition. Nusa Dua, Bali, 2007. 8