Rubber Industry in Indonesia: Halcyon Agri Corp Enhances Position
Singapore-based rubber producer Halcyon Agri Corporation Limited (HAC) will become the second-largest producer and exporter of Indonesian natural rubber after it announced to buy nine Indonesian rubber processing plants (involving USD $360 million worth of investments). HAC is an integrated producer as well as merchandiser of standard Indonesian rubber and standard Malaysian rubber, which are the most widely used grades of natural rubber in vehicle tyres manufacturing.
Executive Chairman and CEO at HAC Robert Meyer said that the nine Indonesian rubber processing factories will be purchased by acquiring the stocks previously owned by Lee Rubber through the latter's Anson Group.
These nine factories involve four rubber plants in Palembang (Sumatra) with a combined export capacity of 275,000 tons per year. Since HAC already owns two factories in Palembang, total rubber export capacity from these six factories will reach 385,000 ton per year and thus HAC will become the largest Palembang-based producer and exporter of crumb rubber (controlling 40 percent of rubber production and export in this city). Palembang is a strategic location for the Indonesian rubber industry as the harbour of this city handles most of the country’s rubber export.
HAC will use a USD $320 million bank loan disbursed by Credit Suisse AG (Singapore branch) and DBS Bank Ltd. To finance the remaining USD $40 million, HAC will sell shares of its subsidiary Halcyon Rubber Company Ltd to Angsana Capital Ltd (a company which is owned by HAC CEO Robert Meyer).
Despite the current low rubber price (USD $1.60 per kilogram), Indonesian Deputy Trade Minister Bayu Krisnamurthi said that future prospects of the rubber industry remain positive. Therefore, the Indonesian rubber industry should remain focused on enhancing rubber production, both in quantity and quality. One of the problems regarding rubber production in Indonesia is that productivity per hectare is very low compared to other ASEAN countries. On average, Indonesian rubber farmers manage to produce 600 to 700 kilogram of rubber per hectare, whereas in other ASEAN countries this figure is around 2 to 3 tons per hectare. The industry is also affected by the low quality of its rubber (for example the poor level of cleanliness), high transportation costs (due to Indonesia’s weak infrastructure) as well as high processing costs. Therefore, Indonesian farmers now only benefit slightly of their rubber output.
Deputy Minister of Agriculture Rusman Heriawan added that productivity can be improved by replanting, using better rubber trees, as most of the currently used rubber trees are old.
According to data from the Indonesian Rubber Association (Gapkindo), Indonesia produced 3.1 million tons of rubber in 2013 (2.4 million tons produced by smallholders, 340,000 tons by state-owned enterprises and 370,000 tons by privately-held companies). The total size of Indonesian rubber estates is estimated at 3.4 million hectares (2.9 million of which owned by smallholder farmers).
Indonesia is the world’s second-largest rubber producer (after Thailand). Most of the country’s rubber is produced on Sumatra and West Kalimantan. Similar to palm oil, the total size of Indonesia's rubber plantations has risen steadily in the past decade due to positive prospects of the rubber industry (resulting in Indonesian farmers shifting away from cocoa, coffee and tea plantations).
Approximately 85 percent of Indonesia's rubber production is exported abroad, mostly (about half of total exports) to other Asian countries, followed by North America and Europe. The main Indonesian rubber importing countries are the USA, China, Japan, Singapore and Brazil.