F

rench tire maker Compagnie Financière Groupe Michelin has reached a deal with a subsidiary of Jakarta-listed PT Chandra Asri Petrochemical to build a US$435 million synthetic rubber plant.

The two entities said on Monday that they had signed an agreement to establish a joint venture that would be 55 percent owned by Michelin and 45 percent by Chandra Asri's wholly owned subsidiary, PT Petrokimia Butadiene Indonesia (PBI).

Construction of the synthetic rubber plant is expected to be launched in early 2015 and completed within two years.

'This joint venture is clearly important to the [Michelin] group's strategic goal ' diversified growth ' in particular emerging areas. The growth in our business means that we have to pay special attention to securing supplies, particularly synthetic rubber,' a spokesperson for Michelin told The Jakarta Post, adding that Indonesia's growing automotive business had lured the company to finally strike a deal with PBI.

Based in Clermont-Ferrand, Michelin now operates in more than 170 countries. The company has been facing business setbacks recently following the ongoing economic crisis in its home continent, Europe, whose car market is likely to fall for the sixth straight year.

Indonesia, having recorded 1.1 million car sales last year, sold 497,670 cars in the first five months of this year, a 15 percent increase from the same period last year. Higher car sales will accordingly create higher demand for tires.

The government's recent approval of incentives for domestically produced, low-cost, green cars will likely boost car sales this year, although at the same time the government also plans to increase subsidized fuel prices, which could curb people's purchasing power.

PBI is currently developing the country's first butadiene plant in Cilegon, Banten. The plant, which is expected to commence production next month, will have an annual total production capacity of 100,000 tons of butadiene, which is used to make materials in tire production such as styrene butadiene rubber (SBR), acrylonitrile butadiene system (ABS) and styrene butadiene latex (SBL).

'The synthetic rubber plant, which will use materials produced at PBI's butadiene plant, is expected to be built nearby,' Chandra Asri director and corporate secretary Suryandi said, albeit declining to reveal how his company planned to finance the joint venture.

PBI's butadiene factory would sell most of its products overseas, according to Suryandi, as it would only start supplying its products to the synthetic rubber plant in 2017, when the construction of the plant was completed.

Apart from its cooperation with Chandra Asri, Michelin has an investment in one of the country's tire manufacturers, PT Gajah Tunggal, which is listed on the Indonesia Stock Exchange (IDX) under the code GJTL. Michelin has held a 10 percent stake in GJTL since 2004.

Michelin and GJTL also signed a cooperation agreement in 2004 focusing on the manufacture of passenger car tires for Michelin's markets outside Indonesia and distribution in the country.

Shares in Chandra Asri, traded under the code TPIA, were unchanged at Rp 2,775 on Monday.