Status, future prospects and structural changes of chemical fiber industry in Indonesia

Status, future prospects and structural changes of chemical fiber industry in Indonesia

General Economic Situation and Business Climate in Indonesia

From 1967 till mid-1997, Indonesia enjoyed a phenomenal economic growth with an annual average rate of about 6.6%. In contrast to that, Indonesian economic growth of 2001 is expected to be only 2.5% (actually 3.3% – the editor).

Since mid-1997, Indonesia has experienced difficult times due to prolonged economic and political crises. Political instability has worsened the economic condition.

Since April 2000, the industrial sector has been facing energy problems. Substantial price increases in electricity, IDO and gas costs have severely affected the synthetic fiber industry.

Textile and textile product exports increased by 28% in value terms to US$8.2 billion in 2000, compared with US$6.4 billion in 1996.

Being the fifth most populous country with the current estimate of population being about 224 million, Indonesia has an abundant supply of manpower.

Overview of the Textile Industry

The Indonesian textile and textile product industry has shown a steady growth over the last five years. Exports have gone up from US$6.4 billion in 1996 to US$8.2 billion in 2000.

Present Situation of Major Products of the Chemical Fiber Industry

The chemical fiber industry in Indonesia covers polyester, nylon and rayon. Indonesia does not have the capacity for acrylic fiber.

APSyFI members produce PSF, PFY and NFY. Production of synthetic fiber and yarn consisting of PSF, PFY and NFY increased from 795,500 tons in 1996 to 1,196,500 tons in 2001 with a growth of 10 % per annum compounded. Demand for synthetic fiber and yarn increased from 726,200 tons in 1996 to 958,200 tons in 2001 with a 6% annual growth rate. The excess supply was diverted to export markets.

Polyester Staple Fiber Supply & Demand Trends

In 1996, PSF production was about 316,500 tons and it has grown to 439,800 tons in 2001, registering a growth of 7Ai per annum. Present PSF capacity is about 526,000 tons, operating at 85%.

Consumption Trends I

PSF consumption was 304,400 tons in 1996 increasing to 456,100 tons in 2001 registering a growth of 9% per annum. The major consumer of PSF has been the growing spinning industry which off takes about 90% of PSF available. The current capacity of the spinning industry in Indonesia is around 7.25 million spindles.

During the last few years, the growth in this sector has been rather stagnant and PSF domestic consumption is expected to grow slowly This will necessitate further increasing exporis of this product.

Trade Flow

Indonesia was a net importer of PSF till 1995, but turned into net exporter from 1996 to 1998. There were more imports of PSF than exports for years 1999 and 2000.

The PSF industry will remain a net exporter for next 4-5 years and see some shortage beyond 2006.

Future Scenario

PSF capacity to increase from the existing level of 526,000 tons to 598,000 tons by the end of 2002, and then-further increase to 665,000 tons by 2005. The PSF domestic industry will remain in oversupply for coming years. The growth in PSF demand will be lower in coming years due to lesser expansion of the spinning industry. Oversupply in the domestic market is partly due to PSF imports, around 10-15% of production. Anti-dumping proceedings are actively being considered against such dumped imports.

Polyester Filament Yarn Supply & Demand Trends

PFY production increased from 450,000 tons in 1996 to 748,100 in 2001 registering a growth of 11% per annum. New capacities recently added have increased the country’s total capacity to 831,000 tons.

Consumption fends

PFY consumption marginally increased from 394,700 tons in 1996 to 480,000 tons in 2001 with a 4%annual growth rate, because of poor demand in the downstream industry as a result of the 1997 economic crisis. The major consumer of PFY in the domestic market is the georgette industry which accounts for about 60% of the total consumption. The remaining 40% is consumed by other fabric industries. The domestic demand is expected to remain subdued because of anticipated stagnancy in the fabric sector’s growth. PFY’s huge surplus will continue to be exported.

Trade Flow

PFY exports from Indonesia increased from a level of 17% of production in the year 1996 to 40% in the year 2001. There is a small import of fancy filament yams since the domestic industry does not produce all the fancy items.

Future Scenario

Highly excessive supply of PFY is expected to continue as domestic consumption will grow at very low levels. The excess supply will have to be exported since not many downstream capacities are planned in Indonesia. Acute oversupply has at present brought the prices down to unprecedented levels. Prices are expected to remain soft due to tough domestic internal competition

Acrylic Fiber

The industry does not have any acrylic fiber manufacturing facilities in Indonesia. The entire demand for acrylic fiber is met by imports. Present consumption of ASF is estimated at around 191,000 tons. Consumption of ASF is stagnant as polyester is the preferred fiber.

Nylon Filament Yarn Supply & Demand

NFY production in the year 2000 was 27,110 tons compared to 29,000 tons in the year 1996. Production peaked during 1997 with the entry of a new producer who subsequently stopped the production.

1999 production was significantly low due to poor domestic demand.

Trade Flow

NFY exports have been steadily growing to 9,400 tons in 2001 in the absence of domestic growth.

Exports will continue to be around 9,000 tons. Domestic consumption is hardly expected to grow (1%) due to limited end uses of nylon in umbrellas, knitting or garments, stocking and fishing nets.

Future Scenario

Supply will continue to remain more than demand in the future. The industry will be operating at a 65% level. An increase in operating rate will further boost up NFY exports in the future as domestic consumption is hardly growing.

Raw Materials

PTA

There are five PTA producers in Indonesia. Indonesia was an importer till 1997, and turned into an exporter from 1998 as domestic supply increased much faster compared to demand. This situation is likely to continue in the coming 4-5 years, as production is a surplus requirement to the tune of 20%.

MEG

There is only one MEG producer in Indonesia. Around 65% of the domestic need for MEG is met through imports. Indonesia is expected to remain an importer in the future since no new capacities are planned.

Closing Notes

Due to economic and political crises and severe oversupply of polyester products, Indonesian producers have to increase their exports. Since no capacity is being added to the downstream industry and due to sluggish prices in polyester products, no expansion of polyester capacity is expected in Indonesia in the coming years. The oversupply situation will prevail.

The economic situation in Indonesia is expected to improve in the near future which may help in increasing the domestic demand for textile products.

Reports for the 4th Conference of Asian Chemical Fiber Industries Federation held in Mumbai, India from March 22-23, 2002 (Partially arranged by the editor)

Copyright Osaka Senken Ltd. 2002/2003

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