Michelin Signs Accord to Form $435 Million Venture in Indonesia

Michelin & Cie (ML) agreed to form a joint venture with Indonesian petrochemical producer PT Chandra Asri Petrochemical Tbk to make synthetic rubber as Europe’s largest tiremaker forecast increasing demand for the material.

“The total investment is estimated at $435 million,” the companies said in a joint statement today. “Pending final investment decision, plant construction is expected to commence in early 2015 with completion and start-up targeted for the beginning of 2017.” Michelin will own 55 percent of the venture, which will be based in Jakarta, and PT Chandra Asri Petrochemical will own the remaining 45 percent.

The French manufacturer plans to increase tire production in Asian markets as demand for cars and light trucks keeps growing in several large countries in the region, including China, the world’s largest car market. This contrasts with the European car market, which is poised to fall for the sixth straight year, causing the Clermont-Ferrand, France-based company to reduce capacity in its home region.

“It seems they are investing here to target the market for replacement tires,” Joko Sogie, an analyst at PT Danareksa Sekuritas, said by phone in Jakarta. “At the current economic growth rate, and the state of the road infrastructure, Indonesian motorists are expected to change their tires once every two years. That rate is higher compared to the replacement rate in Europe which might be once every three years.”

Michelin rose 2.3 percent to 71.22 euros at 10:55 a.m. in Paris trading.

Record Sales

Car sales in Indonesia rose to a record 1.1 million units in 2012, according to the country’s top auto seller PT Astra International. Car sales in the country may slow next year because of an expected rise in subsidized fuel prices, Leonardo Henry Gavaza, an analyst at Bahana Securities, said in a report today.

Michelin said last week it would end production of heavy-truck tires at its Joue-les-Tour factory in France, eliminating 730 jobs at the site and trimming excess capacity amid slumping demand in the region. The tiremaker’s plants are currently using 50 percent to 60 percent of capacity for passenger cars and light trucks, Michelin Chief Executive Officer Jean-Dominique Senard said on May 17.

-- With assistance from Neil Chatterjee in Singapore and Harry Suhartono in Jakarta. Editors: Robert Valpuesta, Thomas Mulier.

To contact the reporter on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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