11 January 1993 00:00 [Source: ICB]
Salim Oleochemicals has wasted no time in taking advantage of its backward integration into palm oil plantations to enter the natural fatty alcohols market, and in three years has established a position where it is ready to compete with the majors.
By Susan Royse
SALIM OLEOCHEMICALS, part of Indonesia's widely diversified Salim group, is poised - just three years after entering the business - to take on the giants in supplying naturally-derived fatty alcohols to the detergent industry worldwide.
The company, established as a small player since 1990 with production facilities in Indonesia and eastern Germany, is currently putting the finishing touches to a 60 000 tonne/year export-oriented fatty alcohols plant on Batam island, at the heart of the Johor-Singapore-Batam growth triangle.
The company is already aggressively promoting its product worldwide, lining up 'launch' customers ahead of the startup of the new plant, scheduled for early next year. Once the plant is fully operational, it is expected to take Salim to joint number three in capacity terms. behind Henkel and Procter & Gamble and on a par with Kao.
The new plant - established under the company name PT Batamas Megah - is being built on a prime 20ha greenfield site on Batam, alongside a new purpose-built tank farm and with ship-in/ship-out pipelines direct to a local jetty. Adjacent land has been set aside for Salim - which owns and manages palm oil plantations in Kalimantan, Sulawesi and Sumatra - to build a palm oil refinery within the next couple of years.
Although Salim is building up production domestically, when it comes to sales and marketing, the Indonesian company is tapping into the ever-efficient Singaporean network: Salim Oleochemicals has established headquarters in Tuas, Singapore, a mere 40-minute ferry ride from Batam - and from where it will be able to monitor the plant's performance via a direct link to the plant's process control system.
The $220m Batam complex is being engineered by Lurgi, which designed and built Salim's first Indonesian fatty alcohols plant, a 30 000 tonne/year facility which came onstream at Belawan, north Sumatra, in 1990.
The Batam plant will be the first natural fatty alcohol plant in the world to be equipped with a dual-reactor system using methylester feed, a system that Lurgi has piloted in Germany which is believed to offer advantages in terms of both process flexibility - in switching between saturated and unsaturated alcohol product.
Unlike its major competitors, Salim has no intention of moving downstream into the manufacture of detergents, personal care products or cosmetics, where it would compete with its customers. Its key advantage is its backward integration into the palm oil plantations. At present it owns and manages more than 100 000ha in Indonesia which by 1995 will produce more than 100 000 tonne/year of palm kernel oil suitable for feedstock for its fatty alcohols production.
Consequently, Salim is promoting itself as the leading independent supplier and is looking to develop strategic alliances with major users which are not themselves back-integrated to the fatty alcohol.
In positioning itself as a worldwide supplier, Salim has set up a marketing arm in the US and has been establishing storage facilities in Newark, New Jersey, and Houston, Texas.
The intention is that Salim should be able to service US customers as though it were a domestic US producer, Singapore-based head of worldwide sales and marketing Erik Rietkerk says. Previously, the company has held a relatively weak position in the US, supplying only on a per order basis.
The company is also planning to establish similar storage facilities in Japan (at either Tokyo or Kobe), Brazil (Santos) and Australia (Sydney). It is also looking at Thailand as another possible storage location.
As president and ceo, Salim Oleochemicals has recruited Lutz Haertel, formerly with Schering and who originally had plans to build a fatty alcohols plant in the US in the late 1980s. According to Haertel, with the additional capacity from the new plant, Salim is aiming to achieve around one-third of its sales in the US, one-third in Europe and one-third in the rest of the world. Product from each of the three plants should be indistinguishable.
Nevertheless, Salim's critics claim the new plant only adds to current overcapacity and that there is no money to be made. Certainly the last three years have seen vigorous growth of the oleochemicals industry in Southeast Asian countries spurred by the availability of feedstock palm oil - including the new P&G/Felda Mills joint venture recently onstream in Kuantan, Malaysia, the Henkel Rika venture in Port Klang, Selangor, and a Kao expansion in Butterworth, Malaysia.
Haertel concedes that fatty alcohol prices are down by 25% and that a worldwide supply/demand balance will not be achieved until 1995-96. However, on the plus side, he believes no other fatty alcohol plant has the competitive advantages of the Batam island facility.
Salim entered the oleochemicals business with an eye to the longer term. As Rietkerk adds: 'Short-term profits were never foreseen and we are committed to our oleochemicals business.' Salim expects the Batam plant to operate at a relatively high nameplate capacity throughout 1994. When operating at full capacity - including production of 9400 tonne/year glycerine - Salim Oleochemicals expects total sales to reach around $95m/year.
Haertel notes the swing towards the use of naturally-derived products. 'In the past, the production of synthetic alcohols outpaced the production of natural fatty alcohols by about 3 to 1. Gradually, and lately accelerating, we have seen a buildup of natural fatty alcohol production capabilities. By the mid-1990s, we would expect that the production of natural fatty alcohols and synthetic fatty alcohols are virtually at the same level,' he says. However, he does not envisage any further grassroots plants for several years.
Salim's first plant, now running above nameplate capacity at around 33 000 tonne/year, is operated under the name PT Aribhawana Utama and is currently Indonesia's only natural fatty alcohols plant. Although this plant does not enjoy the logistical advantages of the Batam island plant, it is nevertheless close to the company's plantations and source of palm kernel oil feedstock. The eastern German fatty alcohol facilities came with the acquisition of oleochemicals manufacturer Deutsche Hydrierwerke from the Treuhand in 1991.
But Salim Oleochemicals' ambitions do not end here. In Europe, the company is continuing with an ongoing rationalisation programme at the Deutsche Hydrierwerke site in Saxony-Anhalt which, when Salim acquired it, produced fatty alcohols, fatty amines, sorbitol and LAB. Salim has already reduced the workforce from well over 1000 to around 190 today. It has streamlined operations, closing down the LAB production.
Haertel accepts that the acquisition has not been problem-free. 'We have never disguised the fact that it was not an easy job to turn the company round, but we have steadfastly backed the operation and are trying to improve the situation,' he says. And he remains bullish: 'Hopefully the economy will pick up soon and we can move forward with investment there.' In particular, a new sorbitol plant could go ahead in 1995-96 to be onstream in the late 1990s. 'We have the infrastructure in place to produce other oleochemicals, but not within the next three or four years.'
Salim is also looking to build a fatty alcohols plant in Europe by 1997, though has yet to decide details. The company hopes to decide on a capacity by 1995. 'It may be only 30 000 tonne/year,' says Rietkerk, though a 60 000 tonne/year unit would be more economical.
In parallel, the company is also looking to the expanding Chinese market for fatty alcohols. Given Salim's Chinese connections - founder Soedono Salim emigrated from China to Indonesia in the 1940s - Rietkerk concedes investments in China are generally viewed favourably.
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