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?
The two biggest cement producers of Indonesia - Indocement Tunggal Prakarsa and Semen Indonesia (both listed on the Indonesia Stock Exchange) - have the same strategy in an attempt to boost their performance in 2018. These two cement producers, which both reported reduced earnings in the third quarter of 2017, will focus on cost efficiency in 2018.
Christian Kartawijaya, President Director of Indocement, said the company will shut down operations at those cement plants that have small production capacity and which use outdated technology. The company's P14 plant in Citeureup (West Java), which is equipped with the latest technology, will replace the older plants. Therefore, production capacity of the P14 plant will be raised from 2.5 million tons to 4.4 million tons (per year). It is estimated that usage of P14 will save Indocement up to IDR 100,000 (approx. USD $7.50) per ton of produced cement (or IDR 440 billion in full-year 2018 if the plant will indeed produce 4.4 million tons).
Indocement's total annual production capacity is set to rise from 20 million tons to 24.5 million tons this year.
Meanwhile, in order to limit distribution costs, Indocement will complete two new terminals (in Palembang and Lampung). The company allocated IDR 1.5 trillion to its capital expenditure budget for 2018. Most of these funds will go to the expansion of its cement production capacity and terminals.
Kartawijaya also said the outlook for cement sales in 2018 is better than last year because coal and crude palm oil prices have been rising and therefore local economies on Sumatra and Kalimantan strengthen. A 5-6 percent (y/y) growth in cement sales should be possible, Kartawijaya said.
Meanwhile, Agung Wiharto, Corporate Secretary at Semen Indonesia, said his company will focus on cost efficiency in the fields of energy, transportation, and operational capital.
Regarding Semen Indonesia's outlook for cement sales in 2018, the company expects to see similar conditions as in 2017 and put its cement consumption growth estimate in the range of 5 – 7 percent (y/y) in 2018, supported by government infrastructure projects, low inflation, political stability and rising market confidence.
Semen Indonesia budgeted up to IDR 7 trillion (approx. USD $522 million) for capital expenditures in 2018. This budget will be used for a couple of projects, including the construction of a new plant in Rembang (Central Java) as well as for the maintenance of production equipment.
Indonesia's cement sector is highly dependent on the infrastructure and property sectors. Unfortunately, Indonesia's property sector has been weak since 2013 and still does not show a real sign of recovery. Infrastructure development, especially government-led infrastructure development, shows better results. In the first 11 months of 2017 Indonesian cement sales rose 7.8 percent (y/y), a mild recovery.
Indonesian Cement Sales 2008-2016:
Source: Indonesian Cement Association (ASI)