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 export performance is much more impressive. In the first 11 months of 2016 Indonesia exported 1.5 million tons of cement, up a whopping 52.2 percent year-on-year (y/y).
It is interesting to note that in November 2016 two of Indonesia's big cement manufacturers - Semen Indonesia and Holcim Indonesia - saw their market share fall more than 6 percent, while Semen Merah Putih and Semen Baturaja gained market share.
Indonesia's installed cement production capacity has grown sharply in recent years due to the influx of new players and expansion programs conducted by existing cement producers. In 2016 the nation's total annual cement production capacity is estimated to touch nearly 100 million tons and is expected to rise to 104 million tons by 2018.
However, the combination of rising production capacity and sluggishly growing cement sales implies that the utilization rate has fallen. In 2016 it is estimated that only 65 percent of the nation's total annual installed cement production capacity was used, down significantly from a utilization rate of 76.9 percent in the preceding year. In 2017 this utilization rate is expected to fall slightly before rising in 2018 on the back of a recovering property sector and the continuation of infrastructure development.
Rising production capacity and sluggishly growing cement demand also implies that the cement price will remain under pressure in the foreseeable future, limiting corporate earnings of the country's cement producers (and therefore a renewed focus on exports is a good strategy). Meanwhile, the higher price of coal and electricity will give rise to higher production costs for Indonesian cement producers. Energy-related costs are estimated to account for about 38 percent of total production costs in the cement sector. In this context the smaller cement producers will face more difficulties to maintain market share and therefore the traditional big cement players in Indonesia should be able to win market share in 2017.
Overall, however, we regard Indonesia's cement sector in 2017 as "underweight" and it will require a significant boost in cement demand stemming from infrastructure development and - most importantly - a rebounding property market before we can become positive about Indonesia's cement sector.
Indonesia's Domestic Cement Sales:
Source: Indonesian Cement Association (ASI)
Indonesian Cement Exports:
Source: BCA Sekuritas
Expectations for 2017:
|Indocement Tunggal Prakarsa||4,265||4.7||13.9||141||15.4|
|Cement Sector Average||-||9.8||25.2||195||13.9|
Source: BCA Sekuritas