Indonesia's Pulp & Paper- Multi-Client Studies

Comprehensive Report

INDONESIAN PULP AND PAPER INDUSTRY ITS OUTLOOK AND PROSPECT

March 2007

Pulp milling industry was not affected by the 1996 – 2001 financial crisis as the industry was backed up by favorable global paper market and financially supported by international banks. Government financial support to pulp industry and weak law enforcement in forestry exploitation were considered favorable by the investors and weakening Rupiah as marked by the rising US–dollar exchange rate was a blessing in disguised by export oriented pulp industry.Image

Pulp milling industry was not affected by the 1996 – 2001 financial crisis as the industry was backed up by favorable global paper market and financially supported by international banks. Government financial support to pulp industry and weaklaw enforcement in forestry exploitation were considered favorable by the investors and weakening Rupiah as marked by the rising US–dollar exchange rate was a blessing in disguised by export oriented pulp industry.

In 2001-2005, Indonesian pulp export destined to 12 major countries more than 19,000 tons per year. In 2005, they were PR. China followed by South Korea, Italy India, Japan, France,the Netherlands, Vietnam, Germany, the Philippines, Malaysia and Taiwan. In 2001, Australia and Singapore included in the major importing countries, each 37.0 thousand tons and 34.2 thousand tons respectively.

Overall paper export development followed similar trend of rapid development in 1996-2000,but slowed down in 2001-2005 and remained so in 2006. In 1996, total export was 1,777 thousand tons then increased by only 1.2% to 1,800 thousand tons in 1997. But, then it shot up by no less than 51.8% to 2,733 thousand tons in 1998, when Indonesian economy contracted drastically by 13%. Therefore, when many other companies going bankrupt during the crisis. Indonesian paper producers were fortunate to have money and capital to increase their production,while in the global market Indonesian pulp and paper industry were getting more competitive.

By value, significant growth of paper export took pale in 2004 and 2005 when world prices of paper increased very notably. It rose to US,303 million (28.6%) in 2004 and to US,625 million (24.7%) in 2005.

China and India, the two rapidly growing economies, have increased their demand for many commodities, including pulp and paper, buoyed by rising global demand. Related to this, the Indonesian Government is now trying to revive investor interest in pulp and paper industry.

Indonesian pulp and paper industry is supported by two major producers.i.e. Sinar Mas Group and Raja Garuda Mas Group which control 75% of pulp industry and 40% of paper industry. Sinar Mas Group is larger controlling 42% of pulp and 33% of paper production capacity, compared to 33% of pulp and 7 % of paper production capacity respectively by Raja Garuda Mas.

The Indonesian Association of Pulp and Paper Industry (APKI) reported that Sinar Mas Group has penetrated China by building a pulp mill operating a one million TPA and a paper mill operating a 700 thousand TPA capacity. Responding to the criticism that the future development of pulp and paper industry would aggravated forest destruction in Indonesia, APKI stated that the new technologies in pulp and paper industry have been developed which are all environmental friendly and of great capacities, especially in China and South America. The pulp and paper in North America and Europe are relatively old with relatively small capacities and absolute technologies.

Investment is expected to start in 2007, by installing machinery and planting pulp wood in the HTI potential. In 2013, the new HTI pulp wood plantation will start producing. This means that before the new pulp mill producing pulp wood, the paper mills will not rely on existing pulp wood forest already planted and harvested.

Such as the facts of the industry described in this report. There are many other related facts and figures in the industry important for those interested in the condition for future prospects.