Gov't Adapts European Tire Industry Standards in 2014

 
The government targets the national tire industry to adapt European standards of tire production in 2014, after the country's infrastructure is ready. (IFT/MS FAHMI)

The government targets the national tire industry to adapt European standards of tire production in 2014, after the country's infrastructure is ready. Panggah Susanto, Director General of the Manufacturing-based Industry at the Ministry of Industry, said the European standards adaption for Indonesia National Standard (SNI) tire production cannot be directly applied. This is due to the national infrastructure consideration and the readiness of industry players.

The application of these standards would not burden the national tire industry if the road infrastructure is adequate. The developments of infrastructure projects are expected to take place in 2014, in line with the Indonesia Acceleration and Expansion of Economic Development Masterplan (Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia/MP3EI).

Currently, the numbers of tire imports from Europe are under five percent of the total national tire sales. Imported tires for heavy equipment needs are mostly from Japan and China.

Arijanto Notorahardjo, General Manager of Marketing at PT Gajah Tunggal Tbk (GJTL), said the government’s plan to adapt European standards will potentially burden the national tire manufacturers. Especially, with the current standard socialization for exports to Europe that will be implemented in 2012.

Currently, the government is socializing the labeling of tire products for export to Europe with the inclusion of quality, performance, safety, and resistance scroll.

In the first semester of 2011, Gajah Tunggal export value reached Rp 2.24 trillion (US$ 255.36 million). Forty-five percent went to the United State market, 20 percent to Europe, 15 percent to the Middle East, 13 percent to Asia, and seven percent to other countries.

According to Arijanto, Gajah Tunggal’s export to Europe consisted of winter tires. This year, Gajah Tunggal received 1.1 million to 1.2 million units of orders for winter tires.
Investment Readiness
Panggah said the national tire industry’s investment is able to meet the growing needs of the domestic automotive industry. Currently, 70 percent of the national production goes to the export market and 30 percent for domestic.

The main factor supporting the national tire industry international competitiveness is the abundance of natural rubber raw materials. Of the 2.4 million tons natural rubber production in 2010, only 15 percent were utilized by the national processing industry. Seventy-five percent were exported.

According to Panggah, investments into synthetic rubber (styrene butadiene rubber) are needed to complement the downstream rubber industry. The national tire industry’s need for synthetic rubber is still 100 percent met through imports.

PT Chandra Asri Petrochemical Limited (TPIA) is currently constructing a butadiene factory with an investment of US$ 135 million. The project will be done in stages through 2013, with a production capacity of 100 thousand tons per year.
Panggah said the government plans to impose a custom exit for natural rubber to be processed domestically and reduce the export of raw goods. The government will also encourage investments in the rubber downstream sector through tax incentives, in accordance to Government Regulation No. 62 Year 2008 regarding Income Tax Incentives for Specific Investment Business Sector and Specific Areas.
National Tire Export Market Expansion


IFT Research Department assessed that the government's plans to adapt the European tires standard for the Indonesia National Standard is a positive step. The standard adaption can increase the national market share. The tire industry – the country’s downstream industry of natural rubber, has the potential to increase production capacity. Foreign investments can also enter the country to build tire factories. Therefore, 84 percent of national natural rubber that were previously exported, can be absorbed in the domestic market

The government’s plan to impose exit custom for natural rubber will optimize rubber products nationwide In the future, Indonesia can export value-added products and not just raw materials.

Indonesia is the second largest natural rubber producer in the world after Thailand.  Value of rubber commodity exports and rubber goods showed an increase growth every year.
Sixteen percent of national production is consumed domestically, while the remaining 84 percent is exported. As many as 55 percent of domestic consumption is absorbed by the tire industry, while the rest is used by the retread industry, footwear, latex goods, gloves, condoms, and rubber thread.