Indonesia’s domestic tire industry is entering a challenging period, marked by the potential closure of the South Korean tire factory, Hung-A, in Cikarang industrial complex, West Java.
The Indonesian Tire Company Association (APBI) has declared that the national tire industry is under the threat of a shortage of raw materials.
There are three main raw materials in tire manufacturing: rubber powder, synthetic rubber, and carbon black. So far, only rubber powder that can be sourced domestically, while synthetic rubber and carbon black still rely on imports.
Azis Pane, Chairman of APBI, expressed concern about the obstacle in the supply of synthetic rubber and carbon black due to Regulation of the Minister of Trade No. 36 of 2023 related to Export Earnings in Foreign Exchange. According to him, these two commodities contribute up to 72 percent of the tire production value.
Meanwhile, the local supply of rubber powder has diminished due to the reduction of rubber plantation by up to 50 percent. Natural rubber contributes approximately 80 percent to the volume of a tire.
Reason behind the decline
Azis raised concerns about the decreasing number of rubber powder factories due to the reduction in rubber plantation. He attributed the proliferation of closed rubber powder factories to government policy mistakes during the early years of President Joko Widodo’s administration.
The government aggressively opened the door to rubber crumb exports, resulting in a dominance of foreign-owned rubber crumb factories.
After the cessation of the free export policy, Azis highlighted that the price of natural rubber, the raw material for rubber crumb, was controlled by rubber crumb manufacturers.
This led to a continuous decline in the domestic price of natural rubber, prompting rubber farmers to switch to other crops such as sugarcane, oil palm, and sweet potatoes. The scarcity of natural rubber in the country has also led to the closure of many rubber crumb factories.
“Currently, the tire industry is worried about the availability of raw materials because the supply of natural rubber in the country has decreased,” said Azis.
He argued that this situation prompts global tire manufacturers to focus on building factories in Thailand and Vietnam. This shift is further driven by the ASEAN Free Trade Agreement, which eliminates trade tariffs among ASEAN member countries.
Additionally, Azis noted that the production cost of tires in Indonesia is much higher than in Vietnam and Thailand.
Although the availability of raw materials is diminishing, Azis said that domestic tire manufacturers can still survive. However, he did not specify when the national tire industry would run out of raw materials.
Reason behind Hung-A departure
Azis explained that the main reason PT Hung-A Indonesia to withdraw from Indonesia was the government’s lack of attention to the national tire industry.
Hung-A couldn’t market its products globally due to the European Union Deforestation Regulation (EUDR), while seventy percent of Hung-A’s total product volume is sold in the European market, especially Germany.
The EUDR has made Hung-A lose the majority of its market, leading the company to consider shifting its focus to Indonesia. Hung-A is a producer of mountain bike tires.
However, Hung-A lacks the production capacity for several product types and submitted an import request to the government. Unfortunately, the government did not respond to the import request, leading to Hung-A’s departure from Indonesia.
“The government’s attention to the tire industry is not like it used to be. The local tire industry was once a world leader; now it can’t be like that anymore,” said Azis.
He noted that the national natural rubber industry has now fallen from the top rank to the fourth position. Furthermore, the national tire industry no longer ranks among the top 10 in the world.
