Tire output up as car sales rise
Tire output up as car sales rise
Fitri Wulandari, Dow Jones/Jakarta
Indonesia's tire makers are stepping up production to meet rising demand from its booming automobile sector.
Tire makers are forecast to produce 40 million car tires in 2005, an increase of 13 percent from the 35.3 million units produced in 2004, said A. Aziz Pane, the chairman of Indonesia Tire Producers
Tire output rose 12.6 percent to 9.9 million units in the first quarter of this year, from 8.8 million units in the first quarter of 2004.
Motorcycle tire production this year could rise 15 percent to 21.8 million units this year, Aziz said in a recent interview.
Aziz said the government's decision to raise fuel prices by an average 29 percent in March did little to slow demand for cars and motorcycles this year.
"We can't scale down our production because we have to anticipate strong demand for cars and motorcycles," Aziz said.
Indonesia's Ministry of Industry has projected car production will rise 18 percent to 500,000 units this year, up from 422,000 units in 2004.
Motorcycle sales is estimated to reach 4.7 million units, up 20 percent from 2004, according to the Indonesian Motorcycle Industry Association, or AISI.
Automotive makers said improving economic conditions have fueled demand for cars and motorcycles.
Indonesia's economy grew 6.35 percent on year in the January- March period, aided by a 15 percent rise in investments and 13 percent rise in exports during this period.
The government projects the country's gross domestic product growth will exceed 6 percent this year, outpacing the official target of 5.5 percent, on surging consumption, investment and exports.
Tire makers are expanding industry capacity to 42 million-43 million units this year, although actual production may not exceed 40 million units, Aziz said.
Aziz predicted consumption of natural rubber will rise 15 percent this year to 182,805 metric tons, while synthetic rubber consumption is likely to rise 10 percent to 117,295 tons.
"We (are using) more natural rubber as synthetic rubber is more expensive, in line with rising crude oil prices," said Aziz.
But tire makers who use petrochemicals have yet to feel the full impact of higher crude oil prices as they secure raw materials through long-term contracts, Aziz said.
"Supply is a bit tight but we don't see any jump in prices of raw material," he said. "We buy raw material every three to six months, so any price increase will be on the next purchase."
However, the rise in domestic fuel prices has made it difficult for tire makers to increase tire prices despite an increase of around 9 percent in costs, including for production and transportation, Aziz said.
"Consumers' purchasing power is still low. We can't raise tire prices because we've already raised prices by 5 percent in January," said Aziz.
Instead, producers are getting selective in what they produce. "We now produce only what sells well in the market," he said.
Domestic tire makers aren't the only ones benefiting from the growing demand for motorcycle and automobile tires.
There is rampant smuggling of cheaper Chinese tires into the country that could damage the local tire industry, Aziz said, adding that motorcycle tire makers were facing the biggest threat.
"Indonesia's motorcycle market is big, about 23 million motorcycles are in use. That attracts Chinese tire makers to sell their products in Indonesia," Aziz said.
Motorcyclists are easily attracted by the lower price of Chinese tires despite concerns about their safety, he said.
For example, locally-produced inner tires cost Rp 8,000 a unit in the Indonesian market, while a Chinese made inner tire can cost as low as Rp 5,400/unit.
"In our calculation, one can't sell inner tires that cheap because one has to pay import tax, duties and so on," said Aziz. "If it is that cheap, it is more likely being smuggled into the country."
Aziz didn't provide an estimate of the losses suffered by the domestic industry because of widespread smuggling of cheaper tires into the country, but said it was increasingly taking market share from local manufacturers.
"More and more stores are reducing their orders. One day, they could stop ordering because they can't sell our tires," Aziz said.