08 April 1997 00:00 [Source: ACN]
As a major producer of polyester fabrics, Indonesia has seen a boost in PTA production
INDONESIA is a major producer of synthetic fabrics and it is no surprise that this industry has been among the first to reflect the broadening and growing maturity of local petrochemical production.
Domestic textile manufacturers have moved successively upstream into purified terephthalic acid (PTA) and downstream into high value-added specialist areas in recent years as they seek cheaper guaranteed supplies and better margins. No less than five PTA projects, all with capacities of 225 000 tonne/year or more, are either underway or imminent. A further two have been planned for Merak, West Java, and will jointly add 700 000 tonne to total output. The sudden surge in capacity means Indonesia is expected to register a surplus of supply over demand for PTA this year.
One of the names at the forefront of the current wave of integration is Polysindo Eka Perkasa, part of the Texmaco Group.
The company has just completed a major US$650m expansion and, according to Polysindo director Steven Simpson, is considering a further US$800m expansion to add more polyester and PTA to existing output. The sheer scale and funding required for viable projects in what is becoming a crowded market is likely to leave lesser players standing.
'We went with what we think is the best industry practice and that is vertical integration which starts at PTA and goes right through to the manufacture of synthetic fibre,' says Simpson. 'Having our own PTA gives us consistent quality and guaranteed supply. We have removed the cyclical nature of the product.'
At the same time, Polysindo has developed specialised downstream products such ascoatings for 'active wear' and polyester fleece materials alongside the commodity staple fibres. 'We are very different from most players we compete against because we go right through from PTA to textiles,' comments Simpson.
'In Taiwan and South Korea, they are all vertically integrated and in order to be a global player, you have to be able to compete with them,' he adds.
Polysindo, in common with the other big Indonesian-based fibres and textile manufacturers, is leveraging the enormous growth potential of the domestic and regional market. 'In Indonesia, the growth rates are tremendous and as the country has no cotton, anyone making manmade fibres is well placed,' says Simpson, referring to the increasing affluence of the nation's 200m consumers.
In fact, the Indonesian polyester market has been growing at a compounded rate of 19%/year over the past six years, and per capita consumption of fibres rose from 3.2 kg in 1992 to 4.1 kg in 1997.
Analysts believe Indonesia is heading for a general overcapacity in polyester staple fibre and polyethylene terephthalate (PET) plastic packaging, although the outlook for polyester filament yam looks better, thanks to strong demand from Europe. PET production, for example, began showing a surplus of demand oversupply in 1996. The market is eventually expected to balance as the local economy grows. 'There is a lot of expansion coming into the market. Some textile-based firms are already experiencing an oversupply situation,' comments one Jakarta based analyst.
The drive towards integration has been largely prompted by low prices and margins as the industry runs along the bottom of its cycle. This was exacerbated in 1995 by the Chinese decision to stop accumulating inventories of plastics and packaging products.
Meanwhile, the surge in PTA production has put pressure on paraxylene supply. Government statistics estimate there is good scope for growth within the Indonesian aromatic derivatives sector to 2000 and beyond.
According to Simpson, Polysindo has no plans to produce paraxylene itself. The company purchases feedstock from Singapore, Japan and South Korea.
Large increases in capacity are expected locally when Tirtamas comes onstream in 1999 and Humpuss Aromatik in 1998. Three other proposed aromatics projects are scheduled to begin production around the year 2000 and beyond.
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