Taiwan’s Cheng Shin Rubber Industry, the world’s ninth-largest tire producer, has quadrupled investment in Indonesia as it seeks a production base for supplying rapidly growing demand in Southeast Asia.
Cheng Shin increased its investment plan to $320 million from $80 million for a new plant, which is expected to start operations by 2015. Richard Lo, Cheng Shin financial director, said the company will use bank loans to finance three quarters of the investment, while the rest would come from its own cash.
Lo said the new plant will make tires for cars and motorcycles for Southeast Asia as the company moves away from China investments in line with rising wages and costs in that country.
Cheng Shin will face tight competition from established tire producers as well as new competitors. South Korean tire maker Hankook Tire, the seventh-largest such firm, opened a $350 million plant in Cikarang, West Java, in September.
Hankook is seeking by 2018 to invest up to $1.1 billion in the plant, which will act as an export base for the North America and the Middle East, as well as a regional hub for emerging Asian markets.
Two Indian tire manufacturers JK Tyre & Industries and Apollo Tyres have expressed interest in building plants in Indonesia that may cost at least $600 million.
Italian company Pirelli has set up a joint venture with the automotive component-maker subsidiary of Astra International to build a $120 million motorcycle tire factory in Indonesia. The plant is expected to be fully operational next year.
Among local tire producers are Gajah Tunggal, the largest tire producer in Southeast Asia, and Multistrada Arah Sarana.
Tire demand in the domestic market was buoyed by strong auto sales. Over 1 million cars in the first 10 months of 2013, up 10 percent from a year earlier, according to the Association of Indonesian Automotive Manufacturers (Gaikindo).
Meanwhile, motorcycle sales for January to October reached 6.51 million units, up on the 5.96 million units sold in the same period last year, according to data from the Indonesian Motorcycles Industry Association (AISI).
The country’s tire exports, on the other hand, dropped 17 percent to $915.5 million due to slowing demand and cheaper tires on the global market, according to the Indonesian Tire Producers Association (APBI).
(Source: Jakarta Globe)