What opportunities for product development can be done in the oleochemical industry? How does Indonesia drive the industry to be more competitive in the international market?
As reported by grandviewresearch.com, the consumption of end-use industrial oleochemical products, such as personal care products, cosmetics, food, and beverages is increasing, which is expected to drive market growth in the future. The increasing demand for sustainable and biodegradable products to reduce dependence on petrochemicals is expected to remain the main factor for the increasing demand for oleochemicals. Manufacturers take the initiative to replace chemically derived products with bio-based ingredients to minimize reformulation and retooling time and costs. The increasing demand for bio-based plastics is also expected to positively affect oleochemical growth.
What is the potential of the oleochemical industry in Indonesia? How has the industry survived in pandemic and made it a more valuable export product?
The Growth and Potential of the Oleochemical Industry Globally
Based on data Grandviewresearch.com, the global market for the oleochemical industry in 2020 will reach a value of USD 19.46 billion. It is estimated that it will continue to grow at a CAGR rate of 7.57% in the period from 2021 to 2028 onwards. The demand for and consumption of chemicals that are more environmentally friendly, sustainable, and renewable in pharmaceutical, cosmetic, personal care, food, beverage, and other industries will provide great potential for the oleochemical industry to continue to grow.
For example the consumption of oleochemicals in the form of fatty acids and vegetable oils is used for the manufacture of soap for food and beverages. Apart from that, it is also used to make lubricants, varnishes, and medicines. Examples of oleochemical products such as specialty esters, glycerol esters, and alkoxylates have the largest product segment.
Furthermore, based on data grandviewresearch.com that producers also took the initiative to replace chemical raw materials with bio-based raw materials in rearranging time and costs. The use of oleochemicals in the industrial sector in 2020 made the largest contribution, namely 21.8%. However, it is estimated that in 2028, the personal care and cosmetic segments will provide the largest revenue contribution. It is said that companies such as Procter and Gamble, a European cleaning product manufacturer, use imported oleochemicals from Indonesia.
Indonesia, The Key Player in Oleochemical Industry with Its Huge Potential
Based on data from Bisnis.com, along with the global economic recovery, the Indonesian Association of Oleochemical Producers (Apolin) said that export volume accelerated 8.3% last year from 3.87 million tons in 2020 to 4.2 million tons with a value of USD 4.4 billion in 2021. The total domestic production capacity of the oleochemical industry in Indonesia reaches 11.3 million tons per year.
This figure includes fatty acids 4.55 million tons per year, fatty alcohol 2.12 million tons per year, methyl ester 1.93 million tons per year, soap noodles 1.83 million tons per year, and glycerin 0.88 million tons. The increase thought to have been triggered by an increase in global demand for oleochemicals, especially for the manufacture of soap and hand sanitizers. From the Indonesia’s domestic market side, based on data from CNBCIndonesia.com, during the pandemic production growth increased sharply by 83.33% due to the high demand for sanitizers and detergents.
The biggest importers of oleochemicals from Indonesia include the European Union, China, India, South Korea, and Japan. It is explained that the oleochemical industry is included in seven sectors that receive incentives from the government in the form of certain natural gas price facilities (HGBT). This incentive is one of the supports from the Indonesian government for the oleochemical sector to remain productive and competitive.
According to Katadata.co.id, The Indonesian Ministry of Industry stated that there also would be new investment coming in 2022 in the national oleochemical industry in the form of building factories in Indonesia. The government has not been able to announce the value or origin of the investment, but the investment is considered to significantly increase domestic oleochemical production capacity. The main reason for moving the factory is the abundance of resources in Indonesia to ensure the certainty of the availability of raw materials.
The Strategies to Develop the Oleochemical Industry in Indonesia
The Association of Indonesian Oleochemical Producers (Apolin) noted that domestic oleochemical production before the pandemic was around 60,000 tons per month, while since the pandemic, production has increased to 100,000 to 110,000 tons per month. There are three strategies that can develop the oleochemical industry in Indonesia:
1. Downstreaming The Industry To Gain Added Value
Acording to The Indonesian Ministry of Industry, since 2010 the oleochemical industry has been made a national priority, has consistently provided support so that, this sector continues to grow, and be sustainable. The products of the oleochemical industry still have the potential to be developed to increase added value.
Indonesian Vegetable Oil Industry Association (GIMNI) said that glycerin as an oleochemical derivative, could still be developed into propylene and propanol so that the selling price would be higher. If glycerin has a price ranging from USD 200-250 per ton, meanwhile the price of propylene and propanol can reach USD 700 – USD 800 per ton.
2. Providing Incentives To Increase The Competitiveness
According to kemenperin.go.id, the oleochemical industry is included in the industrial sector that gets the Certain Natural Gas Price (HGBT) facility in accordance with Presidential Decree no. 40 of 2016. Based on the regulation, seven industries, namely the fertilizer, petrochemical, oleochemical, steel, ceramics, glass, and rubber gloves industries, receive a special natural gas price of USD 6 per million British thermal units (MMBTU). This facility has been received by around 20 oleochemical factories from 11 companies and is felt to be very effective in building the competitiveness of the oleochemical industry’s export products.
3. Commercialization of Downstream Product Research Results
According to The Indonesian Ministry of Industry explained in topbusiness.id urges industry players to commercialize the research results of oleochemical downstream products to an industrial scale with the help of industrial pilot plant facilities that are being built at the Bogor Agro Industry Center (BBIA) belonging to the Ministry of Industry.
Stakeholders can take advantage of industrial services in the form of pilot plants to boost the level of technological readiness and the level of manufacturing readiness, especially for oleochemical products. This is so that the results of the development of oleochemical technology from laboratory-scale research can be realized leading to industrial commercialization, not just stopping in the laboratory or known as the valley of death phenomenon.
There are key players operating in Indonesia who have oleochemical portfolios with a variety of products sold globally. The three companies are BASF, Kao Chemicals, and Godrej which are explained further below:
BASF founded in 1865, has several segments including Chemicals, Materials, Industrial Solutions, Surface Technology, Agricultural Solutions, Nutrition, and Treatment. The company is headquartered in Ludwigshafen am Rhein, Germany with a global workforce of 111,047 as of 2022. BASF SE is engaged in the supply of chemical products.
In the Chemicals segment, BASF supplies petrochemicals and intermediates. The company is headquartered in Ludwigshafen am Rhein, Germany with a global workforce of 111,047 as of 2022. Based on data from Forbes that in 2022, BASF’s revenue will reach USD 92.9 billion, with total assets of USD 102.4 billion and a profit of USD 6.5 billion.
2. Kao Corporation
Kao Corp. engaged in the manufacture and sale of consumer and chemical products. It operates through the several segments like Beauty Care, Human Health Care, Fabric and Home Care, and Chemicals. The Chemicals segment consists of oleo, performance, and specialty chemicals. Kao Corp. which is headquartered in Tokyo, Japan, was listed by Forbes in 2022 as having 33,507 employees with revenues of USD 12.9 billion, total assets of USD 14.8 billion, and profits of USD 997 million.
3. Godrej Industries Limited
Godrej Industries Limited was founded in 1897, it has a market of 1.1 billion consumers globally from consumer goods, real estate, equipment, agriculture, and many other business segments. Headquartered in Mumbai, Godrej Consumer Products was one of the leading home and personal care companies across the country with a global presence Godrej.
Godrej is one of India’s leading oleochemicals players, manufacturing and marketing more than 100 key chemicals around the world. They have diversified their product portfolio to include value-added specialty products and export to over 80 countries across North and South America, Asia, Europe, Australia, and Africa. Based on data from Statista.com, Godrej generated revenue of over USD 850 million in 2022.
Enter The Indonesian Oleochemical Market with BRIGHT Indonesia
Because of the huge impact of the oleochemical industry in Indonesia, of course, it takes a lot of in-depth research about the oleochemical market in Indonesia. So, to enter the Indonesian market, you need the right local partner to assist you.
BRIGHT Indonesia is an ideal business partner for you. We will assist you on the ground, including virtual assistants during the mission, logistical planning, and detailed communication. It can cause your company to focus on developing partnership cooperation rather than the hassles of the business trip.
BRIGHT Indonesia provides several services such as Market Insight Research, Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment. The services will help your business to:
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