Country Report – Indonesia - Rieter

Country Report – Indonesia

Country ReportIndonesia

The Indonesian textile industry is an emerging giant

Christian SchindlerITMF,

Zürich, Switzerland

Martin WerderRieter Machine Works Ltd.,

Winterthur, Switzerland

Joachim MaierRieter Machine Works Ltd.,


Thomas KüttelRieter Machine Works Ltd.,


2 Rieter . Country Report – Indonesia

3 Preface

RIeteR4 The Comfort of Competence

5 ItMF International Textile Manufacturers Federation

8 Economic Situation in Indonesia

11 Textile & Apparel Industry

17 Spinning Industry

Pt. eMbee26 Listen to the Customer

Pt. Indah Jaya30 Top Quality in Cotton is the Key

Pt. IndoRaMa35 Cutting Edge Technology for Consistent Quality

3Rieter . Country Report – Indonesia

Indonesia is, after Turkey and Brazil, the third publication in the country series from Rieter in cooperation with the International Textile Man-ufacturers Federation (ITMF). In the series, the most important global textile markets in which both organizations are active, are analysed. The aim of the publication is to inform the reader of the current economic situation and to continue through to the future perspectives of the coun-tries. The publication has been written by a team which the reader can occasionally recognise by the different styles of writing.

In the second part of the country report, Rieter customers express their opinions.

Made In IndoneSIaThe Republic of Indonesia with approx. 17 500 is-lands is the largest island nation in the world. The population of 251 million with around 360 differ-ent ethnic origins make the Republic of Indonesia the fourth most populous country worldwide. The population density greatly differs. Density is high-est on the island of Java where the capital city of Jakarta is located. Within the ASEAN (Association of South-East Asian Nations) plays a leading role. The most important export products alongside textiles are precious metals, mineral, agricultur-al products, wood and coal. Indonesia is also the second largest global exporter of liquid gas. Indo-nesia recovered relatively quickly and successful-ly from the Asian financial crisis in 2008. A driv-ing factor for the good investment climate is the increasing local demand emerging from the ever stronger middle class.

To improve the basically attractive investment climate, however, various obstacles still need to be overcome such as the relatively high energy costs, unreliable infrastructure as well as expen-sive logistics.

Preface

The textile industry is one of the oldest indus-tries in the country and from a strategic aspect, of great importance. Its contribution to the coun-try’s growth development is considerable. Approx. 1.8 million inhabitants are directly employed in the textile industry and around 3.7 million are fur-ther indirectly employed. The Indonesian textile industry is mainly located on the island of Java, although the textile centers are to be found in the metropolitan areas of Jakarta, Bandung, Surabaya, Semarang and Solo (Fig 1).

The local cultivation of cotton has declined in sig-nificance and no longer plays an important role. For this reason, the Indonesian spinning mills are almost exclusively dependent on imported cotton. The mineral oil producing country is home to sev-eral well-known sizeable synthetic fiber produc-ers. It is therefore not surprising that the process-ing of synthetic fibers has increased in importance and this development will undoubtedly intensify in the coming years.

There is also a noticeable trend that textile com-panies are tending to more and more outsource their activities from India and China to Indone-sia, due to the very attractive labor costs.

After China, Turkey and India, Indonesia is the fourth largest buyer of textile machines and thereby extremely important for Rieter as a ma-chine supplier.


Rieter is the leading supplier of installations for manufacturing yarns from short staple fibers. Rieter is a competent partner, dedicated to mak-ing customers’ lives easier by offering care and support from the initial investment discussions to the successful operation of a spinning mill. Rieter’s comprehensive know-how from fiber through yarn to the finished textiles provides the basis for innovative machines and consist-ent yarn quality.

VaLUabLe SySteMS Rieter is the only textile machinery manufactur-er able to supply all spinning processes and thus provide customers with competent and independ-ent advice, tailored to their individual needs. The outstanding price/performance ratio, high raw material utilization and the longevity of the products make an investment in Rieter machines extremely attractive. Since the company was es-tablished in Switzerland in 1795 Rieter has de-veloped high quality standards. All manufactur-ing facilities are ISO-9001 certified.

the Comfort of CompetenceRIETER

ConVInCInG teChnoLoGy With its comprehensive technological know-how covering all four spinning processes through to the textile end product, Rieter advises and assists customers in selecting the right spinning process. Five Spinning Centers, five textile laboratories and a modern training center in Winterthur are at the disposal of customers worldwide for spinning trials and training purposes.

SUPPoRtIVe PaRtneRShIP Numerous sales and service centers support cus-tomers throughout the world. Customers have been able to reap the benefits of a single contact for their entire spinning operations over decades.

Put your confidence in Rieter's competence and enjoy the comfort of partnership!


The International Textile Manufacturers Federa-tion (ITMF) is an international association of global textile industries. It has set out to keep its members over the whole world continually up-dated by means of questionnaires, studies and publications as well as by the organization of an-nual conferences. Over and above this, the ITMF achieves this goal by its participation in the fur-ther development of the industry’s value added chain and by the publication of well-considered opinions on future trends and international de-velopments.

hIStoRy The International Textile Manufacturers Federa-tion is one of the oldest non-governmental or-ganizations. It was founded in Zurich in 1904 on the initiative of the British cotton spinning industry. The newly founded organization there-by adopted the name „International Federation of Master Cotton Spinners’ and Manufacturers’ Association“. It was often referred to as the „In-ternational Cotton Federation“. The organiza-tion established its headquarters in Manchester, England. For many years and throughout both world wars, it represented and promoted the in-terests of the global cotton spinning and cotton production industries. The appearance of syn-thetic fibers extended the raw material basis of the cotton industry. Simultaneously, the struc-ture of the industry was changed by the verti-cal integration of textile companies and its size thereby enlarged: meanwhile it has become a multi-fiber and multi-process industry.

International textile Manufacturers Federation

ITMF

In 1963, the organization’s headquarters were transferred from Manchester in England to Zurich in Switzerland in order to facilitate international contacts and to improve the administration ser-vices as well as the communication.

Since 1960, membership of the organization has substantially increased and today comprises the greatest part of the worldwide textile pro-duction. It consequently also reflects the inter-nationalization process that has taken place in the field of textile manufacture since the end of the Second World War. So not only has the geo-graphical location of the global textile industry’s capacity drastically changed but the process of adjustment has also influenced the structure of trade associations in the industry. Their origi-nal fragmentation has gradually made way for a more strongly integrated and comprehensive form of representation.

6

JAKARTA area

BANDUNG area

SEMARANG-SURAKARTA area

SURABAYA area

JAKARTA

BANDUNG

SEMARANG - SURAKARTA

SURABAYA

Rieter . Country Report – Indonesia

Fig. 1 Main textile centres on the island of Java

7

JAKARTA area

BANDUNG area

SEMARANG-SURAKARTA area

SURABAYA area

JAKARTA

BANDUNG

SEMARANG - SURAKARTA

SURABAYA



economic Situation in Indonesia

GRowth Indonesia has experienced a steady increase in growth since the 1997/8 crisis. The Indonesian economy has been very resilient to the 2008 cri-sis with a slowdown of only 1.7 % from 2007 to 2009 quickly recovering to 6.5 % in 2011 ac-cording to the IMF (compared to a slowdown of 6 % in the world, 6.1 % in Emerging Markets and 4.7 % in Developing Asia). Last year’s growth rate of 6.2 % was higher than Emerging Market and Developing Economies’ average of 5.3 %, yet lower than China’s 7.8 % (Statistic Indone-sia, IMF). A key factor to the Indonesian growth is its population of approx. 251 million that pro-vides a huge domestic market (household con-sumption accounts for 55 % of GDP growth) and a massive labor force. Those young middle-class consumers are to a certain extent cushioning the national economy from external shocks. In-vestment, both domestic and foreign, is also a key determinant accounting for 33 % of growth. However, the country still has to improve its in-frastructure, labor structure and financial legal framework in order to make its way further up to the top. If Indonesia manages these transforma tions, Standard Chartered expects it to be among the world’s 10 largest economies by 2020 and the top six by 2030.

PRICe StabILIty Since 2009 Indonesia has had relatively stable inflation rates averaging at 5.0 %. From the ac-tual 5.6 %, the rate is forecast by the IMF to fall slowly. Since the crisis of 1997/8 and the sub-sequent abandonment of a managed floating rate, the Bank Indonesia (BI) adopted an infla-tion targeting framework (ITF) in order to better achieve its objective. With price stability as the

ultimate objective of monetary policy (involving exchange rate stability as a prerequisite condi-tion), transparency and independence, the Bank Indonesia has developed tools and procedures to insure macroeconomic stability. The central bank let economical agents anchor their infla-tion expectations on its announced target. By doing so, BI has a greater control over inflation when it holds credible means of action (enough foreign exchange reserves). Such a monetary policy, which has shown great success in other Asian countries, led to relative price stability in Indonesia since its implementation in 2008. Thus, the largest discrepancy in Indonesia’s in-flation rate sank from 9.3 % between 2000 and 2008 to only 1.3 % since 2009.

The decision of Indonesia’s government to aban-don fuel subsidies will help to spear money for infrastructure, education and to reduce the cur-rent account deficit as well as to shift towards cleaner energy. The subsequent hike in fuel prices is expected to raise inflation to 7.5 %. The newly appointed governor of BI reacted by raising its benchmark rate to 6 % and is ex-pected to increase it further. BI is the only Asian central bank to have raised its benchmark rate since 2011 and it will be the first to announce foreign exchange reserves below USD 100 mil-lion, which lowers its credibility. Therefore, the development of Indonesia’s inflation and ex-change rates is to be closely followed.

PUbLIC debtIndonesia has a very low public debt compared to other countries in Asia as well as in advanced economies. Its debt ratio fell significantly from 95.1 % of GDP in 2000 to 24.4 % in 2012.


InFRaStRUCtUReIndonesia has experienced a tremendous growth in the past ten years; however infrastructural bottlenecks need to be removed for the coun-try to continue this positive development. This has been the main concern of the World Bank in its help to the country. Indonesia is hoping that those infrastructure projects will be paid by for-eign and domestic investors rather than spend-ing tax money. For example, a power plant pro-viding electricity to 8 million people in central Java will be built by Japan’s J-Power consortium. Such investments and no more fuel subsidies will put an end to recurrent power outages. An-other important investment area is transporta-tion. It is a challenge to construct roads across an archipelago and delivering goods all over the country remains long and costly. The gov-ernment funds 30 % of a project to connect the principal growth centers with roads and bridges but still need to find investors for the remaining 70 %. This should become easier after the coun-try’s upgrade by rating agencies due to recent economic improvements.

bankInG With 80 % of national assets being bank as-sets, Indonesia’s economy depends heavily on its banks. As of August 2011, there were up to 120 commercial banks operating in Indonesia, the state partially owning three of the top four. The banking system is not at risk with banks working with a very conservative loan-to-depos-it ratio. The world largest Muslim country sees the Islamic share of its financial market quick-ly expanding. Islamic finance involves no use

of interest in investing, lending, or saving, nor speculation or excessive risk. Sharia banking is expected to continue growing at a rate of 30 to 40 % over the next years.

Until a recent change in regulation, Indonesia experienced a massive inflow of foreign invest-ment in the banking industry since up to 99 % of the banks’ share could be owned by investors. In July 2013, BI issued nationalistic restric-tions: ownership of a local bank cannot exceed 40 %; they must work with medium and small businesses and invest in local branches outside Jakarta. Those regulations might result in a sig-nificant increase in M&A deals between small banks seeking to raise capital. This might in-crease market concentration in a country where 70 % of the nation’s credits are already owned by about 15 banks.

aGRICULtURe In 2012, approx. 39 % of the workforce was em-ployed in the agriculture sector representing 14 % of the GDP (World Factbook, CIA). The sec-tor has been growing at an increasing pace since 2008 reaching a growth of 4.2 % in 2012. Indone-sia’s agricultural sector exports a variety of prod-ucts such as spices, rubber, cocoa, coffee, tea, palm oil or rice.


ManUFaCtURInGManufacturing in general and the textile and clothing industry in particular, has been a driving force of Indonesia’s development and continues to represent a significant part of its economy; it accounts for 25 % of the GDP (USD 525 billion). Manufacturing has grown 5.7 % in 2012 accord-ing to Statistic Indonesia. 34.1 % of Indonesia’s exports are from manufacturing, representing about USD 87 billion in 2011. 14 million Indo-nesian are employed in this sector, which repre-sents about 13 % of the total labor force.

tRadeIndonesia is the world’s 10th largest exporter and importer (excluding EU Intra Trade). Its main trading partners are Japan, China, Singa-pore and the EU. 34.1 % of its exports repre-sent manufactured goods (of which 18.8 % are textiles & clothing). The value of textile exports rose since 2009 to USD 4.791 million in 2011 while its share of total exports has shrunk since 2005 to 2.4 % in 2011. This denotes the spec-tacular growth of Indonesia and its accession to higher-value industry and services. Ranked the 10th biggest exporter behind China, the EU, In-dia and the US, Indonesia is a big textile exporter still growing 16 % year-on-year in 2011. While

China and the EU share 58.3 % of the world ex-ports in textiles, Indonesia still accounts for 1.6 % (18 % EU exports are EU Intra Trade). The country is the third largest exporter to Japan and the fourth largest to Turkey (source: WTO).

On a broader sight Indonesia’s exports of coal, palm oil and rubber have significantly increased from 5 % in 2000 to about 30 % today accord-ing to Statistic Indonesia, which furthers its de-pendency toward China. Thus, China accounts for 14 %, 25 % and 30 % of coal, palm oil and rubber global demand respectively with Indone-sia remaining the world’s largest coal exporter. Therefore, the country has become sensitive to commodity prices in general and developments in China in particular.

11

3 500

3 000

2 500

2 000

1 500

1 000

500

02001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1 90

1

1 89

2

1 84

7

1 89

2

1 93

4

2 80

9

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0

2 35

5

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1

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2 12

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2 02

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8

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2

3 25

6

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7

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5

2 14

0

1 96

8

32 %

30 %

28 %

26 %

24 %

22 %

20 %2004 2005 2006 2007 2008 2009 2010


oVeRVIewThe apparel industry has been gradually overtak-en by the textile industry after a peak in 2006. Its decline started to be compensated by textile growth first in 2008. According to the Indonesian Textile Industry Association (API), the textile in-dustry grew by 7.5 % in 2011 and by 4.2 % in 2012. The industry is driven by market demand and investment. The recent turndown in global demand explains the slowdown of growth in the recent past. However, investments have been growing steadily from USD 173.0 million in 2010 to USD 827.5 million in 2012, according to API.

It is interesting to note that the number of appar-el companies decreased between 2006 and 2010 continuously from 3 256 to 1 968 while the num-ber of textile companies first fell from 2 809 units in 2006 to 2 355 in 2008 but increased thereaf-ter again reaching 2 585 units (see Fig. 2).

The number of employees in the apparel and textile industry rose continuously until 2006 with the apparel and textile industry employing 584 000, and 572 000 persons respectively (see Fig. 3). After 2006 employment in both segments started falling but picked up again in 2008 (tex-tile) and 2009 (apparel). In 2010 the number of persons employed in the apparel and textile in-dustry reached 481 000 and 525 000, respec-tively. In line with falling numbers of companies and employees, also the share of the apparel and textile industry in manufacturing fell from 24 % to 22 % between 2006 and 2010.

textile & apparel Industry

600

550

500

450

400

350

300

unit

sem

ploy

ees

in 1

000

Textile Apparel

Source: Indonesian Textile Association (API)

Fig. 2 Apparel and Textile Companies – Indonesia

Textile (Ihs) Apparel (Ihs)

Share of Textile & Apparel in Manufacture (rhs)

Fig. 3 Employees in the Apparel and Textile Industry – Indonesia

Source: API

12

1 000

900

800

700

600

500

400

300

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100

02009 2010 2011 2012

466.45

172.9

520.6

827.45

1 000

900

800

700

600

500

400

300

200

100

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Looking at both foreign and domestic direct in-vestments in the textile industry between 2009 and 2012 investments picked up significantly af-ter a low in 2009 following the global financial and economic crisis (see Fig. 4).

Raw MateRIaLIndonesia is both an important producer and consumer of fibers in Asia. With an operating rate as high as 90 % over the past three years, the country produced 473 000 tons of synthetic staple in 2012 (see Fig. 5). Production is not ex-pected to fall while Indonesia’s capacity should increase over the next three years. The produc-tion of cellulosic fibers has increased significant-ly between 2000 and 2012 from 190 000 tons to 450 000 tons.

mill

ion

USD

Investment realization (FDI+DDI)

domestic & Foreign direct Investments

Fig. 4 Textile Industry Investment Value

Fig. 5 MMF (Staple) Production – Indonesia

Cellulosics Synthetic fibers Total

Source: API

in 1

000

tons

Source: Fiber Organon

13

800

700

600

500

400

300

200

100

02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

69 %

1 8442 015 2 070

2 192 2 258 2 277 2 2112 353 2 232

2 2862 379 2 369 2 438

62 %58 %

63 % 64 % 67 %68 %

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

3 000

2 500

2 000

1 500

1 000

500

0


Cotton consumption in Indonesia fluctuated be-tween 400 000 tons and 500 000 tons per year since 2000 (see Fig. 6). Indonesia is therefore not only an important consumer of man-made fib-ers but also an important cotton consumer in Asia after China, India and Bangladesh.

FILaMent and StabLe FIbeR yaRnAs seen above in Figures 4 and 5, Indonesia con-sumed around twice as much chemical fibers on average than cotton when transforming fibers to yarns since 2000 (see Fig. 7). With total yarn production increasing continuously from 1.8 to 2.4 million tons between 2000 and 2012, Indo-nesia remains an important producer of yarns.

in 1

000

tons

Cotton

Fig. 6 Cotton Consumption – Indonesia

Source: International Cotton Advisory Committee ( ICAC)

in 1

000

tons

Cotton Chemical Fiber

Fig. 7 Yarn Production (Staple & Filament) – Indonesia

Total

Source: ICAC

14

1.6

1.4

1.2

1.0

0.8

0.6

0.4

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0

2010 2012

-2 % -10 % -14 % 0 % -4 % -2 % 12 %

0.82

0.84

0.83

0.95

0.86

1.07

0.92

0.96

0.96

0.99

0.96

1.02

1.00

1.01

1.13

1.6

1.4

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0.6

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0

2010 2012

-5 % -11 % -7 % -17 % -5 % -1 % 13 %

0.79

0.83

0.79

0.92

0.82

0.92

0.86

1.06

0.88

0.97

0.92

1.00

0.99

1.02

1.16


PRodUCtIon CoStSLooking downstream (see Fig. 8) at the next pro-cessing stage – weaving – the lowest total pro-duction costs of woven ring-yarn fabric in 2012 were recorded in Indonesia (USD 0.82/meter) followed by India (USD 0.83/meter), Korea (USD 0.86/meter), Turkey (USD 0.92/meter), Egypt (USD 0.96/meter), the USA (USD 0.96/meter), Brazil (USD 1.00/meter) and China (USD 1.13/meter). It has to be noted here that it is assumed that the yarn consumed for weaving was produced domestically.

When comparing 2012 with 2010, total produc-tion costs of woven ring-yarn fabric came down or were unchanged in all but two countries. In Turkey they dropped 14 %, in Korea 10 %, in the USA 4 % and in Brazil and India 2 %. At the other end of the range, total production costs were up 12 % in China. Since cotton costs still represent approx. 25 – 50 % of total production costs in weaving, changes in cotton prices can have a sig-nificant impact.

When looking at total production costs of woven rotor-yarn fabric in 2012 (see Fig. 9) India re-corded the lowest costs (USD 0.786/meter) fol-lowed closely by Indonesia (USD 0.789/meter), Korea (USD 0.823/meter), the USA (USD 0.855/meter), Turkey (USD 0.878/meter), Brazil (USD 0.922/meter) and China (USD 1.158/meter).

When comparing 2012 with 2010, total production costs of woven rotor-yarn fabric decreased in all but one country. In Turkey they dropped by 17 %, in Korea by 11 %, in the USA by 7 %, in Brazil and India by 5 % each and in Egypt by 1 %. Only in China were total production costs of woven rotor yarn fabric up 13 % as a result of higher cotton prices in China in 2012 in comparison to 2010.

Fig. 8 Total Production Costs, Woven Fabric (Ring Yarn – Ne 30)

Fig. 9 Total Production Costs, Woven Fabric (Rotor Yarn – Ne 20)

USD

per

met

er o

f fab

ric

USD

per

met

er o

f fab

ric

Indonesia India Korea Turkey Egypt USA Brazil China

India Indonesia Korea USA Turkey Brazil Egypt China

Source: ITMF

Source: ITMF

15

160

140

120

100

80

60

40

20

02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

150

100

50

0

-50

-1002000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


tRade In textILeS & aPPaReL Figure 10 is a confirmation that Indonesia is very competitive in cotton yarn production. Since the year 2000, Indonesia has had an annual surplus in cotton yarn trade of approx. 20 000 – 25 000 tons.

Unlike in the cotton yarn trade, Indonesia’s trade balance in cotton fabric is no longer positive (see Fig. 11). Until 2007 the trade balance was positive ranging between approx. 50 000 – 80 000 tons per year. In 2008 this surplus turned into a deficit of approx. 40 000 tons which deteriorat-ed further to reach approx. 65 000 tons in 2010.

in 1

000

tons

Import

Fig. 10 Indonesia’s Cotton Yarn Trade Balance

Export Balance

Source: ICAC

in 1

000

tons

Fig. 11 Cotton Fabric Trade Balance

Source: ICAC

Import Export Balance

16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


Alongside Indonesia’s cotton fabric trade turning negative in 2008, also Indonesia’s total textile trade balance turned into a deficit in 2008. While in 2007 Indonesia’s textile trade balance stood at around USD 3.0 billion, in 2008 this dropped to just around USD 500 million and eventually turned into a deficit of almost USD 1 billion in 2011 (Fig. 12).

Indonesia’s trade balance in apparel was trend-ing upwards since the year 2000 from approx. USD 4.5 billion to almost USD 8 billion in 2011 (Fig. 13).

6 000

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2 000

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-2 000

9 000

8 000

7 000

6 000

5 000

4 000

3 000

2 000

1 000

0

mill

ion

USD

mill

ion

USD

Fig. 12 Indonesia’s Textile Trade Balance

Fig. 13 Indonesia’s Clothing Trade Balance

Source: World Trade Organisation (WTO)

Source: WTO



17

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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5 960 6 136

3 560

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400

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


textILe MaChIneRy Since 2009, the number of new spinning ma-chines installed in Indonesia has significantly in-creased (see Fig. 14). After a short slowdown to only 57 000 shipped short-staple spindles in 2009, shipments of short-staple spindles to In-donesia recovered promptly in 2010 to 464 000 and continued rising in 2011 (517 000) and 2012 (594 000). As a consequence the amount of installed short-staple spindles increased also from 8.04 million in 2009 to 9.24 million in 2012.

Demand for new open-end rotors in Indonesia (see Fig. 15) slowed since the peak in 2007 (8 112) and experienced a drastic fall last year when only 400 new rotors were shipped (com-pared to 4 900 in 2011). Nevertheless, this spinning technology remains relatively strong with a capacity of 117 256 installed rotors by the end of 2011.

Spinning Industry

in 1

000

uni

ts

Shipped (Ihs)

Fig. 14 Short-Staple Spindles – Indonesia

Installed (rhs)

Source: ITMF

unit

s

Shipped (Ihs)

Fig. 15 Open-End Rotor – Indonesia

Installed (rhs)

Source: ITMF

18

3.00

2.70

2.40

2.10

1.80

1.50

1.20

0.90

0.60

0.30

0.00

3

2.5

2

1.5

1

0.5

0

2010

3 % -5 % 6 % -3 % 6 % 3 % 5 %

2012

1.25

1.29

1.32

1.47

1.40

1.34

1.42

1.60

1.55

1.53

1.62

1.68

1.73

1.72

1.80


USD

/ k

gU

SD/k

g

Fig. 16 Manufacturing Costs 2012, Ring Spinning (Ne 30)

Fig. 17 Manufacturing Costs 2012 vs. 2010, Ring Spinning (Ne 30)

Brazil China Egypt India Indonesia Korea Turkey USA

Indonesia Egypt Korea India Turkey China USA Brazil

PRodUCtIon CoStS According to ITMF’s “International Production Cost Comparison” (edition 2012), Indonesia has a very competitive cost structure in cotton yarn production. When just looking at manufacturing costs (excluding raw material costs) Indonesia has the lowest manufacturing costs in ring-spin-ning (USD 1.248/kg of ring-spun yarn) ahead of Egypt in second place (USD 1.323/kg of ring-spun yarn), Korea in third (USD 1.395/kg of ring-spun yarn) and India in fourth place (USD 1.422/kg of ring-spun yarn) (Fig. 16).

Since Indonesia was included for the first time in ITMF’s “International Production Cost Compari-son” in 2012 a comparison to previous editions is not possible. Nevertheless, it is interesting to see how manufacturing costs in the other coun-tries under review have developed since 2010. As one can see from Figure 17 below, manufactur-ing costs increased in all but two countries (Korea and Turkey). They increased in China and India by 6 %, in Brazil by 5 % and in Egypt and the USA by 3 %. On the other hand, manufacturing costs were down in Korea by 5 % and in Turkey by 3 %.

Source: ITMF

Source: ITMF

Interest

Labour

Depreciation

Waste

Auxiliary material

Power

19

1.20

1.05

0.90

0.75

0.60

0.45

0.30

0.15

0.00

1.2

1.0

0.8

0.6

0.4

0.2

0

-2 % 2 % 5 % -4 % 1 % 5 % 2 %

2010 2012

0.55

0.59

0.58

0.58

0.59

0.59

0.62

0.67

0.65

0.65

0.66

0.68

0.72

0.74

0.75


When looking at open-end rotors – the other ma-jor spinning technology – Indonesia had again the lowest manufacturing costs (Fig. 18). While manufacturing costs in Indonesia were the low-est at USD 0.550/kg of rotor-spun yarn, Korea found itself in second place (USD 0.582/kg rotor-spun yarn) ahead of Egypt in third (USD 0.588/kg of rotor-spun yarn) and India in fourth place (USD 0.623/kg of rotor-spun yarn).

Like in ring spinning, also in rotor spinning man-ufacturing costs increased between 2010 and 2012 in all countries except in Korea and Turkey where they fell by 2 % and 4 % respectively (see Fig. 19). India and China had the highest in-crease of 5 %. Manufacturing costs in Egypt and Brazil rose by 2 % each and by 1 % in the USA.

Looking at total production costs that include raw material costs, the rankings changed to a certain extent (see Fig. 20). In ring spinning In-dia was the country with the lowest total costs (USD 3.06/kg of ring-spun yarn) closely fol-lowed by Indonesia (USD 3.11/kg of ring-spun yarn), Korea (USD 3.23/kg of ring-spun yarn), the US (USD 3.28/kg of ring-spun yarn), Bra-zil (USD 3.58/kg of ring-spun yarn), Egypt (USD 4.01/kg of ring-spun yarn) and China (USD 4.65/kg of ring-spun yarn). Obviously the change in ranking was a result of different cot-ton costs. Since cotton costs represent approx. 50 – 80 % of total costs in cotton spinning, dif-ferences in cotton prices can have a significant impact. While the price for a kilogram of cotton in India in 2012 was USD 1.64, cotton prices in Indonesia were higher at USD 1.86. At the other end of the range cotton prices in Egypt and Chi-na were significantly higher at USD 2.69/kg and at USD 3.03/kg.

USD

/ k

g

Fig. 18 Manufacturing Costs 2012, Rotor Spinning (Ne 20)

Brazil China Egypt India Indonesia Korea Turkey USA

USD

/kg

Fig. 19 Manufacturing Costs 2010 vs. 2012, Rotor Spinning (Ne 20)

Indonesia Korea Egypt India Turkey USA China Brazil

Source: ITMF

Source: ITMF

Interest

Labour

Depreciation

Waste

Auxiliary material

Power

20

5

4.5

4

3.5

3

2.5

2

1.5

1

0.5

0

-1 % -9 % -16 % -5 % -2 % 1 % 12 %

3.08

3.06

3.56

3.23

3.88

3.26

3.45

3.28

3.66

3.58

3.96

4.01

4.16

4.65

3.11

2010 2012

4

3.5

3

2.5

2

1.5

1

0.5

0

-9 % -4 % -21 % -10 % -6 % 1 % 14 %

2.34

2.12

2.92

2.30

2.30

2.21 2.

32

2.59

2.32

2.63

2.47

3.19

3.22

3.24

3.70

2010 2012


When comparing total production costs over time (2012 vs. 2010), they fell in most coun-tries (see Fig. 20). In Turkey they dropped by 16 % in Korea by 9 % in the USA by 5 % in Bra-zil 2 % and in India by 1 %. In Egypt total pro-duction costs increased slightly by 1 % but jumped in China by 12 %. While most countries benefited from falling raw material prices, spin-ners in Egypt and China did not. According to the cotton prices used in ITMF’s International Production Cost Comparison 2010 and 2012 the price of cotton fell in Brazil from USD 1.94/kg in 2010 to USD 1.77/kg in 2012. In India they fell from USD 1.74/kg to USD 1.64/kg, in Ko-rea from USD 2.09/kg to USD 1.83/kg, in Turkey from USD 2.28/kg to USD 1.70/kg and in the USA from USD 1.77/kg to USD 1.55/kg. On the other hand, cotton prices in Egypt rose slightly from USD 2.67/kg to USD 2.69/kg but soared in China from USD 2.60/kg to USD 3.03/kg. This jump of cotton prices in China was the result of China’s cotton policy that continued to keep domestic cotton prices up in order to support the cotton farmers in China after international cotton pric-es had already started falling.

In rotor spinning the picture is almost identical (see Fig. 21). While China’s total production costs soared by 14 % and Egypt’s rose by 1 %, all other countries recorded lower total production costs as a result of lower raw material costs. In Turkey they fell by 21 %, in Korea by 10 %, in the USA by 9 %, in Brazil by 6 % and in India by 4 %.

USD

/kg

Fig. 20 Total Production Costs (Incl. Raw Material), Ring Spinning (Ne 30)

India Indonesia Korea Turkey USA Brazil Egypt China

USD

/kg

Fig. 21 Total Production Costs (Incl. Raw Material), Rotor Spinning (Ne 20)

USA India Turkey Indonesia Korea Brazil Egypt China

Source: ITMF

Source: ITMF

21

3.5

3

2.5

2

1.5

1

0.5

0

4 % 1 % -9 % 10 % -3 % 7 % -9 %

1.86

1.93

2.29

2.09

1.97

1.99 2.

16

1.99

2.19

2.48

2.41

2.29

2.45

2.99

2.72

2010 2012


In this context it is interesting to see where total production costs of textured yarns in 2012 were the lowest and how they developed since 2010. According to ITMF’s “International Production Cost Comparison” (see Fig. 22) 2012 India had the lowest costs with USD 1.93/kg followed by China (USD 1.99/kg), Egypt (USD 2.09/kg), Indonesia (USD 2.16/kg), Korea (USD 2.19/kg), Brazil (USD 2.41/kg), Turkey (USD 2.45/kg) and the USA (USD 2.72/kg).

In comparison to 2010 total production costs of textured yarns increased in 2012 in some coun-tries under review. In Korea they rose by 10 %, in Turkey by 7 %, in India by 4 % and in China by 1 %, but fell in the USA, Egypt and Brazil by 9 %, 9 % and 3 %, respectively.

USD

/kg

Fig. 22 Total Production Costs, Textured Yarn

India China Egypt Indonesia Korea Brazil Turkey USA

Source: ITMF


Table 1

Table 2

CoMPaRISon to otheR MedIUM-SIzed textILe CoUntRIeS In terms of population, Indonesia is the most important of the medium-sized textile countries in Asia. Also with the annual per capita income adjusted at purchase power parity, Indonesia holds the top position in front of the other Asian countries with medium-sized textile industries (Table 1).

how modern are the spinning plants in country comparison – Indonesia with upgrade requirements?In this chapter, the installed spinning machines are shown according to ring spindles and rotors. A comparison is made concerning the investment percentage in these spinning capacities over the last 10 years (Table 2). Indonesia has good 9 mil-lion installed ring spindles; only Pakistan has greater capacity with almost 12 million. Typical for the medium-sized spinning countries is the rela-tively low proportion of rotor spinning machines when compared to countries with higher labor costs such as Turkey or the USA.

Population and Gross national Product

Population in Millions GNP per capita in USD adjusted at purchase power parity

GNP in billion USD adjusted at purchase power parity

Indonesia 251 5 100 1 237

Bangladesh 164 2 100 311

Brazil 201 12 100 2 394

Pakistan 193 2 900 524

Turkey 81 15 200 1 142

USA 317 50 700 15 940

Vietnam 92 3 600 326

Country Comparison of Invested and Installed Spinning Machines

Country 2011 Installed Spinning Capacities

Cumulative Shipments 2003 – 2012 Shipments 2012

Short staple ring spindles

OE Rotors Short staple ring spindles

Long staple ring spindles

OE Rotors Short staple ring spindles

Long staple ring spindles

OE Rotors

Indonesia 9 234 681 117 256 2 795 596 40 656 594 288 400

Bangladesh 8 700 000 230 000 4 206 624 76 932 230 784 6 208

Brazil 5 033 530 364 320 519 106 23 032 165 764 47 568 11 064

Pakistan 11 762 390 196 214 4 719 200 448 8 896 150 288 960

Turkey 6 500 000 600 000 3 530 430 281 044 330 692 441 328 60 332 17 516

USA 670 000 303 000 27 440 5 560 103 776 10 752 3 000

Vietnam 4 095 567 116 826 2 444 280 1 680 35 196 186 360 400

Source: World Factbook, CIA

Source: ITMF


In the last 3 years 2010 – 2012, Indonesia has on average invested in more than 500 000 new ring spinning machine spindles per year. This is shown by a rising modernization rate.

The cumulative ring and rotor shipments for the years 2003 – 2012 compared to the installed ca-pacities give a good standard of comparison as to how modern the spinning plants in a country are equipped. The modernization rate is shown in Table 3.

The spinning plants with the worldwide newest machine parks are in Vietnam. That is not sur-prising as the majority of spinning plants were set up after 2004 and 2005 and especially large investments were made in 2007 and 2008 after Vietnam and the USA concluded a bilateral trade agreement in 2006 and Vietnam became a mem-ber of the WTO in 2007.

The Turkish spinning industry lies practically equal with Vietnam in terms of modernization. High re-placement levels are also found in Pakistan and Bangladesh, both markets in which the yarn pro-duction exhibits above average growth. Both coun-tries have a spinning industry with a high propor-tion of ring spinning machines. The lowest renewal rate is found in Brazil where there are a great many ring spinning machines older than 10 years.

Indonesia caught up somewhat from 2010 to 2012 by a high level of new investments and is now in mid-field with regard to the rate of mod-ernization (Table 3).

Table 3

Country Comparison of Modernization Rates

Modernization rateModernization Rate 2012

Short staple ring spindles OE Rotors Spindle Equivalents

Indonesia 30 % 35 % 31 %

Bangladesh 48 % 33 % 47 %

Brazil 10 % 45 % 20 %

Pakistan 40 % 5 % 37 %

Turkey 54 % 55 % 55 %

USA 4 % 34 % 25 %

Vietnam 60 % 30 % 56 %

Source: Rieter Marketing


Table 5

Table 4

automatization Level of new Rotor Spinning Machines

Cumulative Investments 2003 – 2012

Rotor Spinning Machines

automatic semi-automatic manual

Indonesia 16 % 70 % 14 %

Bangladesh 28 % 66 % 7 %

Brazil 87 % 13 % 1 %

Pakistan 89 % 11 % 0 %

Turkey 83 % 14 % 3 %

USA 100 % 0 % 0 %

Vietnam 15 % 81 % 4 %

automatization Level of new Ring Spinning Machines

Cumulative Investments 2003 – 2012

Ring Spinning Machines

with autodoffer

without autodoffer

Indonesia 37 % 63 %

Bangladesh 14 % 86 %

Brazil 98 % 2 %

Pakistan 28 % 72 %

Turkey 97 % 3 %

USA 94 % 6 %

Vietnam 25 % 75 %



75 % of the new ring spinning machines installed in Vietnam between 2003 and 2012 were not equipped with autodoffer. That means, the full cops are taken off these machines manu-ally. Only 25 % were modern ring spinning ma-chines with autodoffer and a connection to a fully- automatic cross winder. In the same period of time, 2003 – 2012, Turkish spinning plants have invested to 97 % in modern ring spinning machines with autodoffer. Indonesia reached a

37 % investment level in ring spinning machines with autodoffer during the same period. When Indonesia’s particularly high investments from 2010 – 2012 are examined, the proportion of ring spinning machines with autodoffer amount-ed to 39 % (Table 4).

In the comparison group of medium-sized textile countries, Turkey has installed the most new ro-tor spinning machines in the last 10 years. Ta-ble 5 shows the composition of new investments 2003 to 2012 according to the categories auto-matic, semi-automatic and manual rotor spin-ning machines.

In Indonesia, as also in the other medium-sized emerging Asian countries, rotor spinning ma-chines are sparsely distributed. At the same time, semi-automatic rotor spinning machines dominate the investments of the last 10 years. During this time, Indonesia invested to 70 % in semi-automatic rotor spinning machines where-as in Bangladesh this ratio reached 66 %. Only Vietnam with 81 % has a higher ratio for semi-automatic rotor spinning machines.


By contrast, the countries with a higher per capita income and thus also higher labor costs show a completely different investment behav-ior. Turkey, Brazil and the USA, the three coun-tries with the highest modernization rate for OE rotors, invested almost exclusively in fully-auto-matic rotor spinning machines (Table 5).

With investments in air-jet spinning machines, Indonesia occupies second place for the medium-sized textile countries, closely behind the leader Turkey (Table 6).

the Indonesian Spinning Industry – automation and Regular Modernization as the ChallengeRing spinning machines without doffer continue to be the dominant technology in the Indonesian spinning industry. On the other hand, Indonesia holds a peak position for modern automatic air-jet spinning machines. Rotor spinning machines are only of minimal importance.

The modernization rate of the Indonesian spin-ning plants in a country comparison is rather to be found in mid-field. However, the transition to a modern textile industry, oriented to inter-national competitiveness, is steadily progress-ing. Automatic ring spinning machines, air-jet spinning machines and rotor spinning machines will further increase in importance to counter increasing wage costs. Especially interesting in this context are therefore the interviews with leading representatives of the Indonesian spin-ning industry.

Table 6

Investments in air-Jet Spinning Machines

Cumulative Investments2003 – 2012

Number of Spinning Positions

Indonesia 8 016

Bangladesh 1 776

Brazil 3 756

Pakistan 784

Turkey 9 892

USA 4 764

Vietnam 4 416


26

Pt. embee • PT. Indah Jaya • PT. Indorama


Listen to the CustomerPT. EMBEE

deLIGht the CUStoMeRMr. V. K. Agarwal, the President Director of PT. Em-bee Plumbon Textiles, explains that “Our company forges success through keeping customers satis-fied”. Boosting the bottom line in business com-bines many variables, but an all-important con-stant is customer loyalty. And with customers’ demands and awareness of professional services growing, it requires a focused and clever approach to achieve this goal. Export-oriented PT. Embee Plumbon Textiles is a standout in maintaining cus-tomer loyalty thanks to its focus on the aspects that matter: superior product quality and after sales service. The producer of yarn and fabric has forged an export marketing strategy based on customer delight in its products and services. Product qual-ity and market understanding is the key to long-term retention of customers and have provided the company with a solid basis for differentiation in the crowded industrial commodity market.

taRGetSContinuous focus on research & development (R&D) has resulted in development of new prod-ucts to meet the future demands of its custom-ers. There is continuous upgrading of plant and facilities to maintain an edge in quality, in addi-tion to ongoing R&D and innovation. This flexibil-ity in deciding the product mix has served very well in the rapidly changing market scenario. The company’s ability to extend its range of custom-ers has helped it weather tough economic times. PT. Embee is a flat and responsive organization which bends itself to customers’ requirements to carve a separate identity in the international market. For this reason it is producing more for the industrial segment which has a stable de-mand pattern as compared to the apparel/gar-ment segment. These efforts have resulted in the factory running at full capacity, even during lean times like the beginning of 2009.

Pt. embee Plumbon textile’s customer-orient-ed approach and continuous technology up-grading have set new standards in product and process development. Pt. embee exports 80 % of its production to 45 countries around the globe. at present Pt. embee has 620 spindles of Rieter Com4®jet producing 100 % viscose and polyester/cotton blends in the count range ne 20 to ne 40. Most of the yarn is destined for knitting applications.

PT. Embee Plumbon Textiles started operations in 1999 with an annual capacity of 50 000 tons of yarn and 12 million meters of fabric at their plant in Cirebon, West Java. Outfitted with modern technology to ensure smooth operation, the plant caters to the demand for high-end textiles in the global market. Currently, PT. Embee Plumbon Textiles has 1 600 employees. The factory has been built with an eco-friendly and social contri-bution perspective, with special focus on meas-ures in waste reduction and power conservation through the use of cleaner technologies. Produc-tion with the best possible raw materials and re-sources available in Indonesia achieves optimum quality products to compete in overseas markets. PT. Embee is the first company in Indonesia to obtain Usterized accreditation for raw materials, quality and process consistency.

Fig. 23 PT. Embee V. K. Agarwal

27



PT. Embee is a market-driven organization. It listens to customers carefully and acts on their feedback. At the same time, it strategizes for emerging market trends and moves rapidly to change the product mix according to changing market demand.

PRodUCt bRandInG aS GRowth FaCtoRThe company’s focus on quality and after sales service has resulted in a global market of loyal customers with exports to 46 countries. Export performance for the last six years has been impressive, with export turnover dou-bled from 2007 to 2012. It aims to maintain this growth trajectory through niche market entry by product brand-ing. Under the GLOBE brand umbrella PT. Embee plans to create different product lines based on usage and ap-plication.

Mr. V. K. Agarwal said that “our continuous efforts to achieve consistent growth in exports were recognized by the President of Indonesia with the Primaniyarta Award (Best Exporter’s Award) for excellence in export perfor-mance for 2011”. Proactive endeavors continue to be made to understand changing market needs; customer visits and regular participation in trade fairs and exhibi-tions ensure that these changes will be anticipated and met. With the company’s emphasis on meaningful in-teraction with trade partners, its raw material suppliers also become buyers of the end products to fulfill specific demand. For instance, Toray from Japan buy the compa-ny’s products for sale in the Japanese market under the TORAY GLOBE brand name. Similarly close collaboration with machinery supplier Rieter and viscose fiber supplier South Pacific Viscose (Lenzing) has led to development of new products using cutting edge technology. The al-liance of Rieter, PT. Embee and South Pacific Viscose (Lenzing) has led to the creation of new products to ca-ter to the niche demand of the garment industry.

InVeStMent In new teChnoLoGy“The main requirement for us to adopt a new spinning technology is its novelty coupled with cost competitiveness. Also we put emphasis on flexibility and quality improvement while select-ing new technology. Besides, we explore the mar-ketability of new product before we decide to in-vest in new technology. For instance we recently invested in Rieter air-jet spinning machines after analyzing market potential for this product. Al-though it was a risky venture considering the fact that most of our customers had never heard of this technology before, we were the first spinning mill to install this Rieter air-jet spinning tech-nology in Indonesia. We had to educate our cus-tomers about this technology before they started buying. Also we had to do a lot of sampling. Now we are satisfied with the results and are further expanding capacities with Rieter air-jet spinning technology.”

the FUtUReRetailers like ZARA are defining the market dy-namics with short delivery times and faster turna-round and this puts a tremendous load on supply chains. PT. Embee is preparing itself for this busi-ness model where speed of execution and flexibil-ity are of utmost importance for survival in the textile industry. At the same time, it has to be in-novative to find new solutions for cost cutting to remain competitive in this low margin business. Now PT. Embee is increasingly using new fiber materials like Tencel®, Modal, Micro modal etc. on new spinning systems like Rieter Com4®jet to develop unique products to avoid dependence on commodities. This way it remains ahead of com-petitors and at same time effectively serves the new demands of its customers.

28



Fig. 24 Unique yarn quality and productivity with air-jet spinning machines

29



30

Pt. embee • Pt. Indah Jaya • PT. Indorama


top Quality in Cotton is the keyPT. INDAH JAYA

Mr. T. Vijaya Kumar, Plant Manager at Indah Jaya, informed us that yarns processed are cotton and some man-made fibers such as cotton/PVA yarns to make yarns for softer towelling. The high-quality terry towels produced in Indonesia are destined for local requirements and export markets, in particu-lar for the Japanese and European markets. The ex-port ratio varies from 40 – 60 % depending on the prevailing price and demand. The latest foray into the Chinese market is a challenge. This high-end market is especially competitive and here towels produced from Egyptian Giza cotton which is ex-tremely soft are appropriate.

CoMPany StRateGyThe PT. Indah Jaya spinning plant in Banten and the PT. Spinnmill Indah are part of the Indah Jaya Textile Industry (Holding). The group’s success in the market can be directly attributed to the clear management concept where quality of the end product is the key. Anything contributing to qual-ity is given first priority and yarn engineering is at the forefront of company strategy. Flexibility in reacting to what the customer wants is very important, the tenet being “what is required, we’ll provide”. Uster Standards are in line with specific customer requirements and the yarn pro-duced shows absolutely no quality deviations.

Pt. Indah Jaya, located in banten, Indonesia, is a company with a history of almost 50 years. Core business of the company is the manufac-ture of terry towels of which they are the big-gest producer in Indonesia but latterly the production of spun cotton yarn has overtaken even towelling products. Complete vertical in-tegration with its own garment brand is the ul-timate aim of Pt. Indah Jaya combined with in-creasing automation.

CoMPany hIStoRyPT. Indah Jaya was mainly active in the manufac-turing of towels ten years’ ago. The company then went on to add two second-hand spinning plants for parallel support of the weaving business and for selling knitting yarn in 2002. In 2008 the next step was further expansion into open-end as a re-sponse to the local yarn requirements for denim. 13 machines were added to increase production to 35 – 40 tons of yarn per day. Eight years ago it started yarn production of 20 to 24 tons of yarn per day and this has now reached the figure of 240 tons per day of which its own daily yarn con-sumption is 30 to 40 tons. A small garment divi-sion also caters for the European markets.

Fig. 25 PT. Indah Jaya, T.Vijaya Kumar

31

PT. Embee • Pt. Indah Jaya • PT. Indorama


A further strategy is selecting the appropriate raw material by sourcing the most economic raw material suitable for producing the yarn quality desired. This gives Indah Jaya the competitive edge to be successful in the market.

MaRket SItUatIonIndah Jaya is a strong player in the domestic mar-ket, especially in carded yarn suitable for high quality knitting as this yarn enjoys a good de-mand in Indonesia. This speciality guarantees a good financial return. However, most of the yarn is exported to China which is a very big market for coarse counts with high demands on yarn quality. Localization of production in China en-sures that Indah Jaya is able to meet their re-quirements with no problem. Chinese customers are interested in long-term business arrange-ments and as the volume they require is some-times extremely high, negotiation is usually nec-essary to find mutual agreement.

InStaLLed MaChIne PaRkThe main raw material processed is 100 % cotton and is sold purely for knitting applications rang-ing from socks to apparel. A small percentage of rayon/cotton blend yarn is produced for denim use. The ratio of carded and combed yarns is ap-prox. 50/50 and a small amount of Egyptian cot-ton is processed for special requirements for pre-mium towels.

The company uses three air-jet machines to pro-duce viscose yarns. For the last 8 years, it has been processing cotton for towels for the Japa-nese market but later shifted to viscose. Cur-rently it produces viscose knitting yarns.

The Indah Jaya spinning installations operate with 81 400 spindles: 13 480 Chinese spindles with automatic doffer, 56 400 Indian spindles with Suessen and 11 520 spindles G 35 with Suessen. The Spinnmill Indah started in 2010 with 32 000 spindles from Rieter K 45 spinning machines plus 98 000 Rieter G 35 spindles and 50 000 ring spindles of an Indian-based company. At present, the compact mix is mostly with Suessen EliTe®. The remainder is non-compact. Conversion of the Rieter G 35 machines to compact will soon be started and sooner or later, the plant will be-come 100 % compact with Suessen EliTe® and Rieter K 45 compact spinning machines. Only the18 000 spindles of the Chinese machines will not be converted.

CUStoMeR ReLatIonShIPSMr. Kumar explained, “Most of our focus is one to one, owner to owner. This results in a very good and solid understanding. The influence of agents and traders is very minimal here. We have agents and traders but the relationship between the management and the customers is quite strong. It is very reliable. We have relatively few custom-ers but with big volumes of yarn. We have never lost a customer, I can say, in the last 8 years.” This ensures confidence in purchasing raw cotton and with their base as a yarn trader they are not affected by speculation.

wIn-wIn SItUatIonWith its compact system, Indah Jaya produce carded yarn in the count range Ne 7-30. This is not widely available in the market and conse-quently, this yarn has become ideal for some of

32



its customers. They are happy with the yarn and Indah Jaya is happy with the yarn price which has the further advantage of not needing to pro-mote the yarn through marketing activities.

The compact system allows the degree of hairi-ness in the yarn to be defined at the required lev-el. Indah Jaya uses the compact system for dif-ferent purposes and the softness of the compact yarn produced is particularly appreciated by cus-tomers as it gives them advantages in the knitting process as well as less filter choking in the dyeing process due to the lower amount of fluff. So if a customer specifically wants compact yarn, it can be supplied.

StayInG wIth RIeteR?Mr. Kumar emphasized that there should nev-er be a compromise on the output quality. Al-though the company is happy with Rieter prod-ucts, it has an open attitude towards trying out new products from competitors, in line with its policy not to accept compromises. It is cus-tomary to buy Rieter machines but that does not mean blind support of Rieter if something

proves to be better. However, it is satisfied with Rieter support and customer services and also the response given by Rieter. A lively commu-nication between Indah Jaya and Rieter has de-veloped and Rieter takes very seriously the con-cerns expressed. A second point is value for money. Investing in costly machines such as the K 45 compact spinning machine is only worth-while when there are specific advantages be-cause the depreciation on interest of approx. 10 % is a big cost factor in Asian countries.

“In Asia, the financial costs are still much higher than energy or labor costs. The interest rate on borrowing is 11 % which represents a heavy bur-den on the profits.” explained Mr. Kumar.

IS aUtoMatIon a toPIC?Automation is the next step, but at a reasonable price and only what is considered justifiable. So almost 95 % of its automatic winding machines are link-coners – a direct link with the ring spin-ning machines. Only some Chinese machines’ au-tomatic doffer are without link-coners and those remaining are all equipped with link-coners. There

Fig. 26 Perfect sliver quality at highest productivity

33



Fig. 27 The combers meet the highest standards in terms of output, quality and economy

is also a lot of scope for reduction of manpow-er so the installation of roving automatic doffing with roving automatic transport is a wise option for future projects. Labor costs are increasing at a rate of 10 – 80 % per year in Asian countries so their first step was to install semi-automatic pack-ing machines which has resulted in a reduction of more than 50 % manpower.

oUtLook FoR the FUtUReAn increase in cotton yarn production is most likely. Here the company is technologically strong and it values the pricing flexibility cotton gives by blending with other raw materials. A wide range of cotton is available but specializa-tion depends on the yarn group parameters and the market being supplied. The big market for

cotton provides scope for increasing production and there has always been a demand for cotton. The management would like to achieve verti-cal integration to avoid sharp fluctuations in the market and to gain a long-term competitive ad-vantage. Expansion in towel production, spin-ning and of course in garment and knitting are important targets for the company. After large investments in 2010, it wishes to stabilize its fi-nancial situation before undertaking further pro-jects. Contrary to European countries, long-term planning is only approximately defined and in-vestments are based on short-term market con-ditions. Being profitable in the short term re-lieves pressure on future finances. “In 10 years, Indah Jaya’s management will have what they want.” was Mr. Kumar’s comment.

34



Fig. 28 For fully-compacted yarns with lowest energy consumption

35

PT. Embee • PT. Indah Jaya • Pt. Indorama


Cutting edge technology for Consistent Quality

PT. INDORAMA

CoMPany deVeLoPMentThe initial plant for ring spun cotton was operated without air-conditioning, hence the choice of loca-tion where the climate was most conducive to spin-ning. At that time, Indonesia had no plants produc-ing polyester or viscose fibers. Indorama started exporting in the mid-eighties and it was then it re-alized that its technology did not meet the expec-tations of global customers. It therefore went into expansion mode and set up a further plant with the latest technology. Further mills followed in the 90s and in 1997 a highly-automated plant spin-ning 100 % cotton was set up. This marked a move away from the low-cost manual labor which was making investment in automation unattractive. To-day PT. Indorama has production facilities in Indo-nesia, Central Asia, Turkey, Sri Lanka and India.

CoMPany StRateGyFirst and foremost is investment in cutting edge technology. As Mr. Agrawal, the responsible CEO for spinning at Indorama explained, “It is one of the reasons why we have been one of the first choice suppliers for most of our customers be-cause we have kept up with the times in terms of technology, quality and most important, con-sistency of quality.”

A further key for success is a good customer rela-tionship. PT. Indorama regards the customer as a long-term partner and the growth of both part-ners is interlinked to how the customer is served. “We believe that the customer has many choices and we need to do something extra to remain his preferred choice. So we don’t believe in cutting any corners which would create an image that we are not doing things the way that we are famous for. That is very important to us.” says Mr. Agrawal.

Since removing restrictions on foreign invest-ment in 1974, Indonesia has experienced huge growth in the textile industry. From a modest spinning unit with 25 000 spindles, Pt. Indora-ma has developed into a major yarn supplier by uncompromisingly aiming for consistent qual-ity achieved through investing in cutting edge technology. the close relationship between Pt. Indorama and Rieter has played a leading role in the company’s success.

The Indorama Group commenced operations in 1976 with a relatively small spinning unit with 25 000 spindles set up in Purwakata by the founder, Mr. M. L Lohia. Since then, its commer-cial activities have extended to cover construc-tion, medical products and spun yarns in various countries worldwide. The current Chairman is Mr. S.P. Lohia, son of the founder. Today it is one of the largest exporters of cotton and synthetic yarns as well as polyester fiber and filaments in Indo-nesia, as well as meeting the domestic demand. Continual investment in latest technology is its key to achieving superior quality and of equal im-portance is its philosophy that the customer is a long-term partner.

Fig. 29 PT. Indorama, Anupam Agrawal

36



A unique aspect of Indorama is the central market-ing organization with a team working in Jakarta. This centrally located team looks after the re-quirements of all customers with the exception of Turkey where a marketing specialist adminis-ters the Turkish market.

MaRket SItUatIonThe market segmentation currently reveals that spinners are producing about 80 % knitting yarns and 20 % weaving yarns. The market for knitting yarns is still growing. One possible reason is the high establishment cost of setting up a weaving, dyeing and finishing company. Also, knits have found a place in fashion, especially in the sports-wear segment where T-shirts in all variations dominate.

The balance between export and domestic sales fluctuates according to the returns. The philo-sophical split is 40 %, 40 %, 20 % with 20 % be-ing the swing that is possible on either side. A withdrawal from the domestic market or no longer serving customers with whom a long-standing re-lationship exists, simply for better profit margins, is not an option for the company as it is aware that profitability can also change very quickly.

InStaLLed MaChIne PaRkStarting with 25 000 spindles, PT. Indorama to-day has 430 000 spindles with 255 000 spindles in Indonesia. From being a pure ring spinner, PT. Indorama now operates air-jet and compact machines and produces yarn from various raw materials and blends thereof.

Its latest venture is in Central Asia where a first fully-automated compact plant commissioned in 2011 with 31 000 spindles with Rieter blow-room, cards, draw frames and ring spinning ma-

chines is being followed by a second identical plant with 40 000 spindles processing 100 % cotton. With the latest investment in a complete plant with fully-automatic rotor spinning ma-chines, PT. Indorama now covers all four spin-ning systems from Rieter.

The company has been producing staple fibers since 1992 as well as filament and is probably the largest producer of polyester fiber. Some of its plants are equipped with 100 % Rieter machinery and others are partly Rieter-equipped. “The Rieter logo is omnipresent in almost every area of our activities, so we can say that Rieter is a very, very important part of our company and we value that relationship.” comments Mr. Agrawal.

The requirements of Indorama for investing in new machines are as follows:•Technology based on its ability to deliver con-

sistent quality.•Life cycle of approx. 20 – 25 years.•Minimal maintenance.•Excellent support from the supplier.

The company philosophy is not to go for cheap suppliers whose machines do not fulfil the re-quirements. Here again, long-term relationships are paramount. The support, the services and the cost of services need to be at a level that makes it economically viable. Choice is dictated by the knowledge acquired over 35 years as to which technology is most suited to which fiber. Once the selection is narrowed down to the two best options, the relationship and the cost of servicing that relationship are finally decisive.

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RIeteR aS PReFeRRed SUPPLIeRMr. Agrawal believes, “that with Rieter we have a very deep, long-term relationship”. In his opin-ion, Rieter has the ability to achieve extraordi-nary things – such as air-jet spinning. He first saw the J 20 air-jet spinning machine in Winterthur in 2010 and then again at the ITMA Barcelona. When Rieter approached the company with the proposal to install a J 20 air-jet spinning machine, it proved a first step to the company purchasing twelve J 20s only 18 months later for two of its factories.

The first compact spinning machine was seen at the ITMA in 1999 and in 2006 Indorama set up a plant with Rieter compact machines with 26 000 spindles. The experience proved to be so good that, despite testing other compacting equipment, only Rieter compact is an option for a cotton spinning mill. The level of consistency and the very low rate of compacting failure with the Rieter compact system completely convinced the company. No complaints have arisen in the last five years about surface defects arising from hairiness. “Ultimately today everyone is making compacts but there is just definitely something different as far as Rieter compact is concerned. We really admire this.” says Mr. Agrawal.

oUtLook FoR the FUtURePT. Indorama aims to grow in a balanced manner where it grows exponentially in every fiber seg-ment that is available. Automation is of prime importance and it is necessary to create capaci-ties with the least possible conversion costs in countries where the company operates.

Maintaining absolute cleanliness and order in the plants is also a source of pride to PT. Indorama. “Our housekeeping is of a level where you can eat off the floor.”

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Fig. 30 Leading-edge technology for automatic and semi-automatic rotor spinning

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The data and illustrations in this brochure and on the corresponding data carrier refer to the date of printing. Rieter reserves the right to make any necessary changes at any time and without special notice. Rieter systems and Rieter innovations are protected by patents.

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Rieter Machine works Ltd.Klosterstrasse 20CH-8406 WinterthurT +41 52 208 7171F +41 52 208 [email protected]@rieter.com

Rieter India Private Ltd.Gat No 134/1, Off Pune Nagar RoadKoregaon BhimaTaluka Shirur, District PuneIN-Maharashtra 412216T +91 2137 308 500F +91 2137 308 426

Rieter (China)textile Instruments Co., Ltd.Shanghai branchUnit B-1, 6F, Building A,Synnex International Park1068 West Tianshan RoadCN-Shanghai 200335T +86 21 6037 3333F +86 21 6037 3399

Country Report – Indonesia - Rieter

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Transcript of Country Report – Indonesia - Rieter