A report from Mandiri Sekuritas also mentions that the entry of a new player (Semen Merah Putih) in Indonesia’s cement industry as well as the opening of new cement plants of established players have caused additional pressure on cement prices and may lead to an oversupply. Meanwhile, the central bank (Bank Indonesia) remains committed to its relatively high interest rate environment with the country’s key interest rate (BI rate) at 7.50 percent in a bid to combat high inflation, curb the wide current account deficit and limit capital outflows ahead of further monetary tightening in the USA. Higher borrowing costs curb property demand. However, Bank Indonesia has announced to lower down payment requirements for the purchase of property in an effort to boost the industry.

Cement sales are one of the key indicators to measure the state of the economy, particularly in the property and infrastructure sectors. The Mandiri Sekuritas report states that growth in Indonesia’s infrastructure spending was relatively flat at -0.6 percent (y/y) so far in 2015. However, Head of the ASI, Widodo Santoso, expects cement sales to rebound on the back of government-led infrastructure projects in the second half of 2015. These projects include the Trans Sumatra toll road, the Manado-Bitung toll road and the Medan-Kuala Namu toll road, as well as smelters, power plants, the Jakarta Mass Rapid Transit (MRT), railway projects and port development across the archipelago. Santoso eyes domestic cement sales of 62 million tons this year, up 3.5 percent from 59.9 million tons in 2014. Next year he expects cement demand to increase to 69 million tons.

Indonesian Cement Sales 2008-2015:

 Year    Cement Sales
   YoY Growth
 2015¹        62 million         +3.3%
 2014        60 million         +3.3%
 2013        58 million         +5.6%
 2012        55 million        +14.6%
 2011        48 million        +20.0%
 2010        40 million         +4.2%
 2009       38.4 million         +1.1%
 2008        38 million             -

¹ ASI target
Source: Indonesian Cement Association (ASI)

Meanwhile, the ASI sees total cement plants’ capacity at 75 million tons in 2015 and at 92.8 million tons next year following the start of production of several large cement factories including Semen Padang and Tiga Roda.

In May 2015, Indonesian cement sales particularly declined in commodity-driven provinces such as South Kalimantan (-41 percent y/y) and East Kalimantan (-24 percent y/y).

Indonesia’s largest cement producer Semen Indonesia saw its market share decline from 44 percent to 43.3 percent so far this year, while the country’s second-largest producer Indocement Tunggal Prakarsa saw its market share fall from 30.5 percent to 29.2 percent over the same period.