Plywood firms advised to restructure plants

Plywood firms advised to restructure plants

JAKARTA (JP): The government, concerned with the steady
decline in plywood exports, told manufacturers yesterday to
restructure their industrial facilities to adjust to the decline
in supplies of raw materials.

Director General of Forest Utilization Titus Sarijanto told a
press conference here yesterday that restructuring will be a
necessity for plywood companies wanting to survive in the future.
"You restructure, or you go broke," he said.

Titus made his remarks in response to recent press reports
that 50 plywood companies were on the brink of bankruptcy due to
difficulties in obtaining raw material.

The reports predicted that this trend would further hinder the
growth of Indonesia's non-oil exports, the rate of which has
declined in the past few years.

Exports from plywood in particular, dropped by 11.95 percent
last year to US$3.7 billion from $4.2 billion in 1993, according
to the Central Bureau of Statistics.

In the first seven months of this year, they fell again by
14.15 percent to $1.98 billion from $2.3 billion in the same
period of last year.

Plywood manufacturers blame the decline on the commodity's low
price on the world market.

"It is true that plywood prices are now declining (on the
world market) and it is likely that manufacturers which don't
have enough timber supply will get in trouble," Titus said
yesterday.

He calculated that wood-based companies which do not have
forest concessions must currently buy logs at US$115 per cubic
meter. Based on the assumption that two cubic meters of log is
needed for every cubic meter of plywood, a plywood manufacturer
must buy at $230 worth or logs for each cubic meter of plywood he
produces.

Other expenses are production costs ($126), transportation
costs ($20) and mandatory forest fees and marketing costs ($40).

The total, $416, will not mean profit if plywood prices drop
to as low as $350 or $400 per cubic meter, as is currently the
case on the world market.

Titus said that if a plywood firm has a forest concession,
which guarantees the manufacturer's raw material supply, log
prices will reach only $50 per cubic meter, or $100 for every
cubic meter of plywood produced.

Relocation

Apart from restructuring the industrial facilities of plywood
companies, Titus said, the Ministry of Forestry has also asked
them to relocate their factories closer to the sources of raw
materials.

"Factories should be closer to timber sources, such as in
Irian Jaya and other parts of the eastern Indonesian region, to
cut back expenses," he said.

Asked to explain the relationship between the current
situation and the boom in plywood prices in 1993, Titus said
plywood firms should be the ones to answer.

"It's most likely that profits gained by the plywood firms (in
1993) have not been re-invested to develop timber estates. As a
result, they now suffer a shortage of raw materials," he said.

Titus said the Ministry of Forestry currently requires all
forest concessionaires to submit financial reports, "so we know
where all their money has gone to."

The government recently granted logging permits for 22.5
million cubic meters of timber for 1995-1996.

Indonesia has approximately 100 wood-based companies with a
total processing capacity of 44.5 million cubic meters of timber.
(pwn)