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.
However, Indonesia's annual installed cement production capacity has now reached 107.9 million tons (based on information from the Indonesian Cement Association, or ASI), almost twice as much as national demand.
This is a concern because Indonesia is not a big cement exporter, hence local cement companies have to offer very competitive prices on the domestic market amid this oversupply situation. Moreover, as domestic demand is limited part of their production capacity remains unused. Considering these cement companies have invested heavily in business expansion, especially in the 2009-2012 period amid the property boom (and often using bank loans to finance expansion programs), their financial situations are under pressure. This especially applies to the smaller Indonesian cement producers. The bigger ones, including those listed on the Indonesia Stock Exchange, have bigger cash reserves at their disposal.
Romauli Panggabean, analyst at Bank Mandiri, noted that in terms of cement production capacity Indonesia has nearly outperformed US cement capacity (which is estimated at 108 million tons per year). In 2014 the USA was in fact the world's third-biggest cement producer. However, if Indonesia's cement demand only rises by an average of 4 percent per year, it would take up to 2030 before Indonesian cement demand and production capacity are on par (provided the nation's cement capacity remains at the same level during this period).
In this situation two matters are important: (1) the government should discourage new players entering the cement industry in order to curb production capacity expansion, and (2) existing players should boost their cement exports.
Indonesian Domestic Cement Sales 2008-2017:
Source: Indonesian Cement Association (ASI)
If we take a look at the world's biggest cement importers (2016 data), then we see three Asian countries ranked within the top 10 (see table below): Bangladesh, the Philippines, and Singapore. These three countries should become the main targets of Indonesia's domestic cement manufacturers. In fact, Indonesia already exports a significant chunk of cement to Bangladesh, therefore the Philippines and Singapore are the true potential growth centers.
However, despite the proximity to the Philippines and Singapore, Indonesian cement exporters fail to boost shipments to these countries. There are several reasons, and all are related to competitiveness. Fierce competition originates from Japan, Vietnam and China. Especially, Japan has recently been able to offer competitive rates as the yen has been weakening, while the quality of Japanese cement is great.
Meanwhile, Vietnam - an important cement supplier to Bangladesh and the Philippines - can keep its cement rates low due to cheap labor. Lastly, China may actually be the biggest rival. China, the world's largest cement producer with its annual cement production capacity at 2.5 billion tons (and where there also occurred a massive oversupply situation due to China's economic slowdown), can offer its cement for USD $50.5 per ton, while Indonesia's most competitive price is USD $93 per ton.
Therefore, Indonesia also needs to focus on optimizing production efficiency on order to be able to offer competitive cement to foreign buyers in Asia. Another strategy - as in the case of Semen Indonesia - is to acquire an existing cement manufacturer abroad (for example in Vietnam) or develop a factory there.
World's Biggest Cement Importers in 2016:
(in million tons)