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Michelin Planning Use of Natural Raw Rubber from Indonesia

09 Jun 2015

Michelin, one of the world’s biggest tyre manufacturers, spends more than €7 billion per annum on commodities and the bulk of that expenditure is on rubber. Michelin spends about 42% of its commodity budget on natural rubber and 24% of the total expenditure on synthetic rubber. This is because rubber forms the major component of tyres. Tyre manufacturers purchase more than 70% of the world’s rubber, and this means that natural rubber is always in demand. Sourcing Rubber Southeast Asia is the biggest producer of natural rubber. Countries like Thailand, Indonesia, and Malaysia grow and process more than 70% of the world’s rubber. However, over the last few years, the prices of natural rubber have increased fourfold. Furthermore, due to climate change and increasing demand, rubber production and processing has become unstable. For tyre manufacturers like Michelin, this can be very dangerous as they require a constant supply of rubber for their manufacturing plants. In an effort to meet demand, Michelin has tied up with BPG or the Barito Pacific Group to produce natural, eco-friendly rubber. This collaborative effort is designed to cultivate and process natural rubber from local farms through eco-friendly farming techniques. Apart from cultivation, harvesting, and production, the joint venture has also roped in the World Wide Fund for Nature to supervise reforestation procedures in adjoining areas. According to Michelin, the project will start with the reforestation of three concessions in Indonesia. On one half of the area comprising of the provinces of Jambi (Sumatra) and North-East Kalimantan-Timur (Borneo), Michelin will be planting rubber trees. These trees will be cultivated with state-of-the-art eco-friendly techniques and are expected to yield about 80,000 metric tons of rubber every year. On the remaining land, Michelin, BPG, and WWF will work together to reforest the area and create a natural farming environment for locals. The project will encourage local crops and natural forestation. It will ultimately result in more than 16,000 jobs in direct and indirect ventures. In order to ensure that the project remains on-point, Michelin and BPG have appointed a local governing body that will include the WWF. The coordinating community will ensure that mandates are followed and it will also ensure that Tigapuluh National Park and Limau Protected Forest that are located close by, are not affected by the project. The WWF France Foundation will also be working in the area to ensure that local flora and fauna are preserved around the concession zones. BPG is a local timber company that diversified into petroleum, geothermal power, and mining. At present, Michelin and BPG are also working on an alternative project called P.T. Petrokimia Butadiene Indonesia (PBI) that deals with the synthetic rubber formation. Michelin has invested $55 million in the natural rubber project and it plans to have the system up and running within a decade. The four-year partnership was inked an April 24th and project work has already started. Michelin is also working with PBI’s parent company P.T. Chandra Asri Petrochemical TBK. Both companies have signed a deal to expand Michelin’s operations in Asia.

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