Indonesia’s Pulp & Paper Industry:Trends, Risks, Opportunities

Christopher BarrWoods & Wayside International

21 October 2010

Indonesia’s pulp & paper sectorRapid expansion since early-1990s

2010 BHKP capacity = 7.1 million Adt/yr

2009 BHKP production = 5.97 million tonnes

→ export volume = 2.6 m tonnes (2008)

→ export value = US$ 1.4 bn (2008)

2009 paper and paperboard production = 9.36 million tonnes

→ export volume = 3.1 m tonnes (2008)

→ export value = US$ 2.7 bn (2008)

Major pulp mills in Indonesia

APP/Sinar Mas GroupPulp Capacity:

• Indah Kiat (Riau) = 2.3 Adt/yr• Lontar Papyrus (Jambi) = 800,000 Adt/yr

Integrated with pulp and paper production in Indonesia and China

35 plantation concessions cover 2.3 m hectares in Riau, Jambi, S. Sumatra, W. and E. Kalimantan

APRIL/RGE Group (formerly RGM)Pulp Capacity:

• RAPP (Riau) = 2.9 Adt/yr• Toba Pulp (N. Sumatra) = 200,000 Adt/yr

Integrated with pulp and paper production in Indonesia and China

28 plantation concessions cover 1.2 m hectares in Riau, N. Sumatra, and E. Kalimantan

Heavy investments in Acacia plantations

… but significant sustainability risks

• Conversion of natural forests

• High carbon emissions

• Conflicts with local people

Conversion of natural forests

High carbon emissions, esp. on peat

Tenure conflicts with communities

Growing pressure to respond to sustainability concerns …

• NGO campaigns

• Buyers seeking responsible sources

• Climate change --Norway-Indonesia LOI

But capacity expansion is also underwayMinistry of Forestry’s promoting US$ 15 bn of investment in new capacity by 2020:

• Pulp capacity to 16.0 m tonnes/yr

• Paper and board capacity to 18.5 m tonnes/yr

• 9.0 million hectares of plantation concessions already allocated for conversion

Key point: If pulp capacity expands to 16 million tonnes/yr, annual wood demand will grow from 29 m m3/yr to 72 m m3/yr

Many new mill projects are ‘planned’… not all will be built

Source: Verchot et al. (CIFOR 2010)

APP and APRIL expansion in China

• APP Hainan mill has 1.2 m Adt/yr of BHKP

• APP now building new mill with 2 APMP lines in Guangxi

• APRIL Rizhao has 1.3 m Adt/yr

• Both APP and APRIL import wood chips from Indonesia to fill fiber shortages in China