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INDONESIAN COMMERCIAL NEWSLETTER
January 2011

PROFILE OF PULP AND PAPER INDUSTRY 


Introduction

Indonesia has the potential to become the world's third largest producer of pulp and paper.  The country has an advantage in the availability of  wood basic material .  The country has one of the world's largest tropical forests. Currently Indonesia is the 11th largest producer of paper  and the 9th largest producer of pulp in the world.

Indonesia is a tropical country where trees grow three times faster  than in countries non tropical regions like Europe. The country also gains from its strategic geographical location in the fast growing Asia which is a huge market for pulp and paper .

Competition is sharp globally  in the business of pulp and paper  and meanwhile, call for environmental conservation is also strong Countries of destination for exports of timber products are  stricter in their conditions rejecting timber products from illegal source or  countries accused of damaging forests. Official certificates are needed to show the legality of timber products.

In  2011, exports of  paper by  Indonesia were still facing hurdles in dumping allegations. The fact that the price of Indonesian paper is highly competitive has given rise to the suspicions that the country has committed dumping . Every year there  are always countries accusing Indonesia of dumping . The country's paper industrialists and the government have been made busy in seeking to prove that the allegations were false such as through the  World Trade Organization .

H.M. Mansur, the chairman of the association of pulp and paper companies (APKI) said once the anti dumping import duty  was slapped on a paper product , other related products would likely be imposed with additional import duties.

Indonesia has been a target of dumping allegations by countries of destination of  exports of paper. Some countries  imposed anti dumping import duties  and countervailing duty (CVD). It costs a lot of energy and fund battling the allegation.  South Korea has imposed  anti dumping import duty on writing and printing paper and Malaysia  on  newsprint  from Indonesia  in the past five years.

Indonesian products have also been imposed with higher imports duties in some countries  on absence of bilateral trade agreement. For example, Pakistan imposes lower import duties on Chinese paper under preferential trade agreement (PTA). The import duty on Chinese paper is 17% as against 40% on Indonesian paper  as the country has no PTA with Pakistan.

Structure of  pulp and paper industry

a.        Profile of  pulp and paper industry

APKI said the country has 80 pulp and paper companies including 10  operating integrated factories of pulp and paper, 67 paper factories  and 3 pulp factories . New factories are generally  larger and   use higher technology.

In 2009 , the country pulp producers have a total installed capacity  of  7,902,100 tons per year, including 5,232,000 tons  or 81.2% of integrated factories producing pulp and paper per year  and 1,215,000 tons of pulp  factories per year.

PMDN companies make up 64 of the 80 companies  consisting of pulp factories with a  capacity 2,797,100 tons a year  and paper producers with  a capacity of 4,913,380 tons .

PMA companies are smaller in number only 13 units but they are largest in capacity . The 13 PMA companies have a production capacity of 3,410,000 tons of pulp  and 4,800,300 tons of paper a year .

The remaining 3 companies are state companies (BUMN) including PT, Companies Paper Leces, PT. Paper Padalarang  and  PT. Paper Kraft Aceh. The three companies have a total capacity of only 240,000 tons of pulp and 337,900 tons of paper a year . See the following table.

b.        Locations

Most of the pulp and paper factories are located in Java  mainly West Java and East Java  totaling 64 companies Pulp factories in Java have a total  capacity of  340,000 tons (5.3%)  and paper factories with  a  total capacity of 8,550,440 tons (85.2%). In Java , paper factories have larger capacity than pulp factories . Large paper factories are  Java include PT, Indah Kiat  in Serang , Banten and  PT, Tjiwi Kimia  in Sidoarjo,  

Sumatra has 14 pulp and paper factories mainly pulp factories. Pulp factories have a total capacity of 5,552,000 tons as against paper production capacity of only 1,491,140 tons. One of the largest pulp companies in Sumatra is PT. Riau Andalan Pulp & Paper  in Riau.

The government  has banned  construction of new pulp factory in Java . Sumatra, Kalimantan and Papua, which have larger lands  with larger source of wood basic material, become the choices for place of  new factories .

c.        Expansion of capacity of  pulp and paper industry   sluggish

The production capacity  of the country's pulp and paper industry  has expanded by the growth was sluggish on difficulties in securing the basic material. The government allows only pulp and paper industry to use timber from industrial timber estates (HTI)  A pulp and paper plant is required to have a HTI , development of which will take years,  producers said.
    
In  2005 , the capacity  of the country's pulp factories totaled 6,447,100 tons, up to 6,697,100 tons in  2006. In 2007, there was no capacity expansion . In 2008, the capacity expanded 17.99% to 7,902,100 tons.
The increase in capacity was recorded after PT, Indah Kiat Pulp & Paper (PT, IKPP - (Riau), PT. Riau Andalan Pulp & Paper (PT. RAPP)  and  PT. Lontar Papyrus (Jambi) completed de-bottlenecking . In 2009, the capacity remained at 7,902,100 tons.

The  production  capacity for paper did not differ much . In the period of 2005-2007, the capacity grew only 2% per year. A strong growth in paper production  capacity   was recorded only in 2008  after the completion of de-bottlenecking by  PT IKKP, PT RAPP and PT Lontar Papyrus, resulting in a 17.56% increase in the  country's production capacity  from 10,359,481 tons  in 2007 to  12,178,650 tons in  2008.

d.        Production  capacity of cultural paper

The country's paper products include cultural paper (writing, printing, newsprint), industrial paper (liner, kraft and  board) and specialty paper (tissue, cigarette paper, paper for banknotes, etc.)

Based on official figures of APKI,  cultural paper had the largest production  capacity  in 2008 . Cultural paper accounted for 42% or 4.184 tons of the country's total paper production capacity of 12.178 million tons.

Main players in pulp and paper industry

a.        RAPP , largest producer  of pulp

PT. Riau Andalan Pulp & Paper (RAPP) is the largest producer of pulp and paper in the country' Its integrated factories have a production  capacity  of 2 million tons per year. The pulp  subsidiary of  Asia Pacific Resources International Limited (APRIL)  of the Raja Garuda Mas Group in Riau is the largest pulp maker in Asia.

The second largest producer  of pulp is PT. Indah Kiat Pulp & Paper (IKPP), a subsidiary of the Sinar Mas Group.  IKPP operates a integrated factory  of pulp and paper . It has three factories  with a total capacity  of 1,820,000 tons per year.  In  2009, IKPP's  production   totaled 1,866 million tons of pulp including 618,000 tons of paper  and 1.268 million tons of packaging paper .

The  Sinar Mas Group has other pulp and paper making subsidiaries including PT. Lontar Papyrus Pulp & Paper Industry (LPPI). The company, which is located in Jambi, has production capacity  of  665,000 tons  per year. Its  real production  in 2009 included  608,700 tons of pulp and 51,200 tons of tissue paper  disposed of n the domestic and export markets.
b.        Indah Kiat , largest producer  of paper

PT, Indah Kiat Pulp & Paper Tbk (IKPP) of the  Sinar Mas Group is the largest paper producer  with installed capacity 2,111,000 tons per year, IKPP has three paper factories  -  in Tangerang with a  of capacity 106,000 tons/year, in  Bengkalis 700,000 tons/year  and  in Serang 1,305,000 tons/year. With that capacity,  IKPP is the largest  paper producer  in Asia,  

After  IKPP, the second largest paper producer  is PT. Pabrik Kertas Tjiwi Kimia Tbk which is also of the Sinar Mas Group.  Tjiwi Kimia has a  total installed capacity  of 1,044,000 tons,

Based on the annual report of Tjiwi Kimia  in  2009, it had expanded its production  capacity  to 1,412,000 tons per year, including 1,014,000 tons paper, 78,000 tons of packaging paper  and 320,000 tons  of other types of paper (stationery) per year, Its factory is located in Sidoarjo, East Java, producing various types of paper  and stationery including writing books, notebooks,  envelopes, computer paper , gift paper, shopping bags, etc.

Another major paper producer is PT. Kiani Paper  having an initial  production capacity of 525,000 tons per year. Recently it expanded its production capacity to 1,125,000 tons per year.

Production

Pulp and paper production 

Steady growth of 7% a year was recorded in the country's pulp and paper production  with capacity utilization of around 80% for several years before 2008.

A setback was recorded in the wake of the 2008's global financial woes that   resulted in weak demand globally . The country's pulp  and paper industry also suffered a setback that year but caused more by difficulties in securing basic material.

That year,  two largest pulp producers PT Indah Kiat Pulp & Paper Tbk  and  PT Riau Andalan Pulp & Paper were faced legal case suspending their operation  in pulp production over alleged use of illegal trees.  The two companies were accused by police of illegal logging  although the allegation was  denied by the forest minister.  Police and the forestry ministry have different interpretation of the regulation on illegal logging.

In 2005, the country's pulp  production  reached 5,467,540 tons, up to 6,231,174 tons in  2006  and to 6,282,330 tons in the following year.  In 2008, the  production of pulp fell again to 5,910,416 tons before rising to 6,525,099 tons in 2009 to follow the recovery of the world's economy notably in Asia  In addition , PT Riau Andalan Pulp & Paper  and  PT Indah Kiat Pulp & Paper Tbk  were allowed to resume operation to produce pulp.

a.        Production paper

Indonesia's production of  paper in the past five years has grown sluggishly  by only 3.4% a year . In 2008, the production even fell  5% .

In 2005, the country's  production of  paper totaled  8,207,620 tons, up to 8,637,615 tons in  2006 and to 8,680,972 tons in 2007.

In  2008, the production fell  4.94%  to  8,251,972 tons, as a result of legal case involved PT Indah Kiat Pulp & Paper Tbk  and  PT Riau Andalan Pulp & paper. In 2009,  the production  of paper rose 12.80%  to  9,308,225 tons  as the legal case involving the two larger producers  was already settled  and they could resume normal operation. ....


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