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Property | Overview of the Indonesian Paint Industry: Still Promising Despite Slowdown

After experiencing a slowdown in 2015, Indonesia’s paint and coating industry has been on the rise again since 2016. The sector is expected to continue to grow robustly over the next five years driven by the Indonesian government’s infrastructure and housing projects (See Indonesia’s Mass Housing Sector: The Rise of Vertical Housing). Nevertheless, support from the government is still needed to achieve sustainable growth especially in establishing a national standard for paints and coatings. This is important to improve product quality amid growing competition following the implementation of the ASEAN Economic Community as well as ensuring health and safety standards (See Indonesia and the ASEAN Economic Community – Ready for Regional Integration?).

Overview of the Indonesian Paint Industry: Still Promising Despite Slowdown
The paint and coating industry is one of few business sectors in Indonesia with strong domestic players with local brands dominating the paint and coating market

Back on track again

Indonesia’s paint and coating industry has long enjoyed stable growth and was mostly unaffected by the economic slowdown and the weakening of the rupiah exchange rate (See The Present Plight of the Indonesian Rupiah).  The strength of this industry is supported by Indonesia’s expanding middle-class as well as its number of industrial consumers such as property and real estate developers (See Indonesia’s Industrial Property Sector: Rising Supply and Demand), furniture makers (See Indonesia’s Furniture Sector; Sitting Comfortably), the automotive industry (See Downshifting Demand – Insights into Indonesia’s Automotive Sector), marine (See Indonesia's Fisheries Sector: Under a New Paradigm), and electronics sectors (See Indonesia’s Electronic Component Sector: 4G Smartphones A Future Growth Driver).

The Indonesian property sector is the major growth driver of Indonesia’s paint and coating industry. The high demand for new housing and the cultural tradition of repainting one’s house in the lead up to public holidays, such as Eid and Christmas, assures the steady demand for paint and coating products going forward. In addition, the demand from the marine and furniture sectors has been growing significantly in recent years. The latter offers huge potential as Indonesia is among the top three furniture manufacturers in ASEAN along with Vietnam and Malaysia.

In 2010, Indonesia’s domestic paint consumption reached 772,454 tonnes. In 2014, this figure soared to 877,459 tonnes with a market value of 15 trillion IDR. Likewise, Indonesian paint exports also increased from 21,742 tonnes in 2010 to 29,068 tonnes in 2015. Meanwhile, imports also rose from 45,927 tonnes in 2013 to 65,392 tonnes in 2014. Decorative paint accounts for 50% – 60% of all paint sales in Indonesia, which is followed by industrial and automotive paints.

In 2015, the Indonesian paint and coating industry felt the impact of the global and domestic economic slowdown and its market value dropped to 10 – 12 trillion IDR. The industry declined by 10% and only 60% of its total production capacity was utilised. This situation persisted until the first quarter of 2016 and was exacerbated by lower demand from the automotive and property sectors as well as the decline in profitability by 0.4% due to the increase in labour costs (See Indonesia Moves to Address Minimum Wage Woes) and the price of titanium dioxide. Nevertheless, the industry managed to grow by 9.7% by the end of the year. The growth was supported by the government’s large-scale infrastructure projects (See High Stakes for Indonesia's New Infrastructure Push), including the one million homes programme (See Mass Housing Plan Spells Massive Opportunity), which requires a substantial volume of paints and coatings. Many Indonesian and international paint manufacturers are eyeing these projects for further sales.

The Indonesian property sector experienced a slowdown in 2016 as prospective buyers, especially in the premium segment, delayed their purchase to wait for the tax amnesty realisation (See Indonesian Government Banking on Tax Amnesty to Plug Tax Shortfall ). In addition, escalating political tension since the last quarter of 2016 until the first quarter of 2017 has also negatively affected the property sector.

Increased competition and investment

The paint and coating industry is one of few business sectors in Indonesia with strong domestic players with local brands dominating the paint and coating market taking up to 75% to 80% market share. The largest paint manufacturer in Indonesia is PT Propan Raya Industrial Coating Chemicals which is the leading player in wood paints and finishes with a market share of 67% and 2.3 trillion IDR in combined sales. Its customers consist of retail (40%), projects (20%), industry (30%), and others (10%). The furniture industry is a major contributor to its sales and the company claims to be the first and the biggest wood paint manufacturer in Southeast Asia. 

The second largest player in the paint industry is PT Avia Avian. The company plans to hold an initial public offering (IPO) worth $250 million USD or about 3 trillion IDR in 2017. Avian will use its IPO earnings to expand and maintain its domestic market penetration rate.

Another top five paint manufacturer is Akzo Nobel NV which sells the Dulux brand through its subsidiary, PT ICI Paints Indonesia. The company is the leading player in premium paint and coating products, especially in the decorative paint sector.  

Indonesia has huge potential for the paint industry, particularly for decorative paints. It follows the same patterns as consumer goods.

Further large-scale players in the Indonesian paint and coating industry include Nippon Paint Holdings Co that sells the Vinilex and other premium brands. The company accounted for 25% of the total sales value of decorative paints in Indonesia. The company's ten factories produced 30% of industrial paints and 70% of decorative paints. In 2016, the company invested 37.6 billion IDR to increase the production capacity of its factory in Cibitung, Bekasi, by 40%.

Jotun is another example of a major paint producer, which is also aimed at the premium market. The company expects this market to continue to grow amid a decline in medium and low-end segments. Jotun has set a target to increase its market share in decorative paint to 35% which contribute 50% of its total sales. Another half is divided between protective paint (30%) and marine paint (20%). To achieve its goal, the company invested some $30 million USD for the construction of a distribution centre and expanded its factory to increase its production capacity to 100 million litres.  Jotun currently owns three factories in Cikarang, Legok, and Cibitung.

Another notable paint manufacturer, PT Kansai Prakarsa Coatings through its ‘Kansai Paint’ brand, has been aggressively investing in Indonesia. The company has invested 60 billion IDR in constructing two emulsion and zinc chromate facilities in order to increase its production. The company has operated a factory in Tangerang since 2015 with a total area of 4.2 hectares and employs 600 workers. Notably, nearly 90% of its raw materials are sourced locally.

In the automotive paint sector, DuPont and Indaco are among the top players. Besides automotive paints, Indaco’s product portfolio includes water soluble decorative paints, anti-corrosive coatings and wood stains under the Belazo and Envitex brands.

Lack of standard remains an issue

One of the major weaknesses of  Indonesia’s paint industry is the lack of standards that regulate the paint quality. Many domestic paint manufacturers have not complied with the international standards that have been set.  Some are even intentionally lowering their quality and using cheap and dangerous raw materials in order to offer cheaper prices to the market. The industry expects the government to issue a National Indonesian Standard (SNI) for paint products and ban the use of pigments that use heavy metals such as chrome and tin to protect domestic consumers. The introduction of SNI will enable domestic manufacturers to export their products and compete with foreign products in the domestic and international markets.

Bright prospect ahead

Euromonitor estimates that the CAGR of the paint and coating industry will grow by 9.8% over 2016 – 2021, reaching  41.3 trillion IDR by 2021. This is supported by the government’s plan to invest 5.5 quadrillion IDR in infrastructure and residential construction projects until 2019 which will further sustain the growth of the industry.

Infrastructure development, including housing, has been one of the key priorities of the Joko Widodo administration. Not long after he took office in 2014, President Jokowi launched the one million homes programme. Under this initiative, the government is determined to build one million accommodation units every year until its term ends in 2019. 

Marine coatings also offer an interesting growth avenue for the future given Indonesia’s focus on reinvigorating its marine infrastructure as well as marine industries such as fisheries and aquaculture. The Indonesian government has ratified the International Convention on The Control of Harmful Anti-Fouling Systems on Ships which requires ships to use anti-fouling paints. This will open up a new demand for the paint industry as Indonesia’s shipbuilding sector grows in tandem with its marine focused logistics ambitions (See Indonesia's Maritime Ambitions Require Massive Upgrade of Seaports).

Global Business Guide Indonesia - 2017

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Indonesia Property Snapshot - Real Estate

Contribution to GDP: 2.79% (Q3 2015)
Mortgage to GDP Ratio: 3.5% (2015)
Housing Backlog: 15 million (estimated 2016)
Average Condominium Price: 48,100,000 IDR/sqm (CBD, Jakarta, Q3 2015)
Average Retail Space Rental Price: 500,00 IDR/sqm/month (CBD, Jakarta, Q1 2016), 545,968 IDR IDR/sqm/month (Jakarta, 2016)
Average Office Space Rental Price: 401,010 IDR/sqm/month (CBD, Jakarta, Q1 2016)
Average Industrial Land Price : $221.51 USD/sqm (Bekasi, Q1 2016), $144.16 USD/sqm (Tangerang, Q1 2016)
Relevant Law: Government Regulation No. 41 of 1996 on Housing or Residential Ownership for Foreign Citizens Based in Indonesia allows foreigners to own leaseholds of up to 70 years subject to renewals at 25, 20 and 25 year intervals.