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Today's Headlines Cement Industry
Robustly rising exports of cement and clinker so far in 2018 are a glimmer of light on the horizon for Indonesian cement manufacturers. Domestic conditions in Indonesia's cement industry remain less rosy as a massive inflow of investment in cement production facilities in recent years has given rise to a major cement supply glut.
Indonesian cement manufacturers remain optimistic that domestic cement consumption in Indonesia will rise more markedly in the second half of the year. In the first half of the year national cement sales rose 3.48 percent year-on-year (y/y) to 30.0 million tons.
The wide gap between total national installed cement production capacity and total domestic cement demand will continue to put pressure on Indonesia's cement industry in the foreseeable future. While all local cement manufacturers together are now able to produce a total of 108 million tons of cement per year, domestic cement demand in Indonesia is only expected to reach 68-70 million tons in 2018. Hence, there exists a major oversupply of cement; an oversupply that puts pressure on cement companies' corporate earnings.
Cement sales in Indonesia rose 6.6 percent year-on-year (y/y) to 15.7 million tons in the first quarter of 2018. While the Indonesian Cement Association (ASI) initially expected cement consumption to be flat in March, consumption actually rose 3.4 percent (y/y) to 5.21 million tons in the third month of the year, hence pushing the overall Q1 figure to 15.7 million tons. A country's cement sales are a good indicator to measure its property and infrastructure development.
Domestic cement consumption in Indonesia rose 5.2 percent year-on-year (y/y) to 4.79 million tons in February 2018, supported by significantly rising cement demand on the islands of Sumatra and Kalimantan. Widodo Santoso, Chairman of the Indonesia Cement Association (ASI), said most provinces on Sumatra showed rising appetite for cement last month with the exception of West Sumatra and Bengkulu.
Indonesia's state-controlled cement manufacturer Semen Indonesia experienced a 8.8 percent year-on-year (y/y) increase in domestic cement sales to 2.77 million tons in October 2017. Meanwhile, the company's cement exports jumped a whopping 131.2 percent (y/y) in the same month. However, these exports (145,271 tons of cement in October 2017) come from a low base.
Cement consumption continued to improve in Indonesia in August 2017 on the back of rising demand from Java and the eastern region of Indonesia. Widodo Santoso, Chairman of the Indonesian Cement Association (ASI), said Indonesia's cement consumption rose 9 percent year-on-year (y/y) to 6.47 million tons in August 2017.
Over the past two years the cement oversupply in Indonesia has become increasingly excessive. Indonesia's total annual installed cement production capacity has now risen to 106.3 million tons, while domestic demand may not exceed 65 million tons in 2017. Moreover, production capacity will rise further this year as Semen Indonesia will open two new plants later this year.
Indonesia's largest cement producer Semen Indonesia, which controls about 41 percent of the domestic cement market, targets to have raised its annual installed cement production capacity to 37 million tons by September 2017. Johan Samudra, Director of Production and Business Strategy at Semen Indonesia, said the company's production capacity currently stands at 32-33 million tons.
Indonesian cement producers urge the government to protect the nation's existing cement manufacturers that have invested heavily in expanding production capacity in recent years but are plagued by the combination of weak domestic cement consumption and Indonesia's rising overall cement production capacity. Both factors are the reason behind the oversupply of cement in Southeast Asia's largest economy.
Latest Columns Cement Industry
Between the years 2011 and 2013 Indonesia’s cement industry seemed to be a goldmine. Double-digit growth in annual domestic cement sales – supported by strong growth in the country’s property sector, particularly on the islands of Java and Sumatra – attracted new foreign investment in cement production facilities, while established cement producers in the Archipelago invested in expansion of their cement production facilities.
Semen Indonesia, the largest cement producer in Indonesia, announced in November 2018 that it has signed a conditional sales & purchase agreement with LafargeHolcim Ltd to acquire an 80.6 percent stake in Holcim Indonesia, the third-biggest cement producer in Indonesia.
Over the past five years Indonesia's annual cement production capacity surged to above 100 million tons, while domestic cement consumption has difficulty to reach beyond 65 million tons (and Indonesia exports relatively few cement). The subsequent oversupply condition puts significant pressure on cement prices. So, what are the strategies of Indonesian cement producers in 2018?
Cement consumption in Indonesia grew 5.7 percent year-on-year (y/y) to 41.1 million tons in the January-August 2017 period (compared to the same period one year earlier). This can be labelled a rebound compared to bleak growth of 1.8 percent (y/y) and 1.6 percent (y/y) in 2015 and 2016, respectively. This year Indonesian cement demand could in fact reach 64 million tons.
While domestic cement demand remains bleak, Indonesia's cement producers managed to raise their level of production capacity utilization due to a surge in exports. However, export growth will only slightly improve the structural oversupply situation in Indonesia's cement market. With installed annual production capacity estimated at 103.8 million tons of cement, nearly 40 million tons of capacity remains unused.
For Indonesian cement producers it is vital to maintain their market share amid ongoing difficult times. With Indonesia's total installed annual cement production capacity now being around 100 million tons, while domestic demand is only expected to reach 65 million in 2017, cement players are facing weak prices amid a big oversupply, while foreign demand for Indonesian cement is yet to grow. Meanwhile, due to the arrival of various new cement players in Indonesia in recent years, competition for market share has become increasingly fierce.
Cement sales in Indonesia weakened 5.4 percent month-on-month (m/m) - or 5.3 percent on an annual basis - to 5.7 million tons in November 2016. However, in the first 11 months of 2016 Indonesian cement sales reached a total of 56.5 million tons, up 2.8 percent (y/y) from domestic cement sales in the same period one year earlier. This modest growth is supported by government-led infrastructure development as well as smelter and power plant development. The housing market, however, remained flat. Also intense rainfall managed to curtail the progress of projects. Below, a snapshot of our latest report.
Indonesia's cement exports are targeted to reach 1.5 million tons in 2016, up 50 percent (y/y) from the realization of approximately 1 million tons in the preceding year. Up to the end of July 2016 Indonesian cement exports had already risen by 63 percent (y/y) this year. Although coming from a low base, rapidly increasing cement exports are highly welcome to offset the nation's rising cement oversupply. Due to the arrival of new cement producers and production expansion of existing cement players, while domestic cement consumption remains bleak, there occurred a big oversupply.
The year 2015 was a sluggish year for Indonesia's cement industry amid the country's slowing economic growth. Total cement sales only rose 1.8 percent year-on-year (y/y) to 61 million tons, the slowest growth pace since 2009. In the first month of 2016, however, a positive sign was detected. Widodo Santoso, Chairman of the Indonesian Cement Association (ASI), said Indonesian cement sales rose 4.4 percent (y/y) to 5.14 million tons in January 2016 (from the same month one year earlier) on the back of government-led infrastructure development.
As cement sales in Indonesia are expected to rise nearly 10 percent (y/y) to 66.4 million tons in 2016 on the back of government-led infrastructure development, investment growth and accelerating GDP growth, three cement producers are set to benefit. The three market leaders in Indonesia's cement industry that should see higher sales are Semen Indonesia, Indocement Tunggal Prakarsa and Holcim Indonesia.
