East Kalimantan Methanol to operate later this year

East Kalimantan Methanol to operate later this year

By Johannes Simbolon

BONTANG, East Kalimantan (JP): The operation of Kaltim
Methanol Industry's methanol manufacturing plant in Bontang, East
Kalimantan later this year will cause an oversupply of methanol
on the local market.

But company president Abdul Wahab said yesterday the
oversupply would not last long as the new plant could stimulate
the development of other methanol-based industries in Indonesia
like the acetic acid industry.

"Therefore, we are not worried about the oversupply because we
believe demand will soon pick up with the development of other
methanol-based industries," Wahab told The Jakarta Post at a
ceremony marking the completion of the company's methanol plant.

He said investment in acetic acid in Indonesia had great
prospects because Indonesia so far imported most of the raw
materials for garment, food and rubber industry.

Wahab said KMI would produce 660,000 tons of methanol a year
starting December this year, 60 percent for export and the
remaining 40 percent or about 260,000 tons for the local market.

KMI is 70 percent owned by the Humpuss Group controlled by
President Soeharto's son Hutomo Mandala Putra and 30 percent by
Japan's trading house Nissho Iwai Corporation.

He said the methanol plant on Bunyu island, which is currently
operated by the Medco group in joint cooperation with the state-
owned oil and gas company Pertamina -- the owner of the plant --
has a production capacity of 300,000 tons of methanol a year,
which is sold on the local market.

The methanol plant in Bunyu was built in 1985, but faced
production problems for 10 years because of natural gas supply
shortages.

Medco has established infrastructure to supply gas from the
nearby Tarakan.

Wahab was confident KMI could control the largest portion of
the local market because it had long formed business partnerships
with local buyers through its sister company Humpuss Trading.

Humpuss Trading was the sole distributor of methanol produced
on Bunyu Island before Medco stopped its monopoly early this
year.

"Although our competitor offers lower prices, we believe our
former buyers will not leave us because we now have our own new
manufacturing plant which guarantees the continuity of supply
from us," he said, adding buyers' continuity of supply was more
important than price.

KMI would also have no difficulty finding an overseas market
in case the 250,000 tons of methanol it had allocated for the
local market could not be absorbed.

According to the joint venture agreement between Humpuss and
Nissho Iwai, the Japanese company will handle the sale of KMI's
methanol outside Indonesia.

"The market in Asia is very big. So far, we believe we can
compete with the North American and Arabian suppliers on the
regional market because we pay a lower freight cost," said Wahab.

He said there were only three methanol plants in Asia -- KMI's
plant in Bontang, Pertamina's plant in Bunyu and the plant in
Sabah owned by Malaysia's Petronas -- which had the combined
production of 1.62 million tons a year, compared with Asia's
demand which reached three million tons a year.

Industrial analysts speculated that the estimated oversupply
of methanol might prompt Humpuss to develop an acetic acid plant
in the near future.

Wahab neither confirmed nor denied such a speculation.

In yesterday's ceremony, Wahab presented the contractor of
KMI's methanol plant, Lurgi, with the certificate stating KMI
accepted the mechanical completion of the plant.

Lurgi, based in Frankfurt, Germany, is one of the world's
biggest hydrocarbon engineering companies.

Wahab said the plant would conduct trial operations for three
months before commercial production starts in December.

"The plant has finished ahead of schedule and the cost of
construction might be less than the US$350 million budget we
allocated," he said.