2010    2011    2012    2013
Cement Production   
in million tons
   37.8    52.0    60.6    65.0¹
Cement Consumption
in million tons
   40.8    48.0    55.0    61.0¹

¹ indicates a forecast
Source: Indonesian Cement Association

Java - Indonesia's most populous island as well as the economic and political center of the country - accounted for almost 55 percent of Indonesia's total cement demand from January to April 2013, a 11 percent growth compared to the same period last year. The second-largest cement market is on the island of Sumatra, which accounted for about 21.5 percent of the country's total cement demand. However, year-on-year growth in cement demand on Sumatra is limited. In the first four months it only grow 1.8 percent (YoY).

It is interesting to note that on three islands cement consumption grew far above the national average due to infrastructure and property projects. The Nusa Tenggara region in the eastern part of Indonesia posted 23.1 percent growth, the Moluccas and Papua posted 14 percent growth, while Kalimantan grew 11.4 percent. Although in absolute numbers cement consumption is still low, these growth rates do indicate that the outer regions in Indonesia's eastern part are developing (learn more about economic inequality between western and eastern Indonesia). 

Indonesia's Cement Sales

     Jan - April
   Jan - April
    YoY Growth
Java     8,925,483     9,908,342         11.0%
Sumatra     3,838,401     3,906,222          1.8%
Kalimantan     1,319,786     1,470,574         11.4%
Sulawesi     1,301,991     1,269,123         -2.5%
Nusa Tenggara       903,887     1,112,995         23.1%
Moluccas and Papua       394,491       449,690         14.0%

Source: Indonesian Cement Association

Sulawesi is the only island that experienced a fall in cement demand as various infrastructure projects on the island have finished. It is assumed that demand will grow again later on in this year.

Total exports of Indonesia (which comprises cement and clinkers) has fallen rapidly in recent years as the country's cement producers aim to meet domestic demand first before considering exports. The export of clinkers was stopped altogether in the period January-April 2013. As such total exports declined 61.6 percent (YoY) to 52,500 tons.

What Drives Indonesia's Cement Consumption?

Indonesia has been experiencing continuous and robust economic growth for a number of years. The country's gross domestic product (GDP) grew over six percent annually since 2007 (except for 2009 when international turmoil caused Indonesia's GDP growth to drop to (a still impressive) 4.6 percent. Moreover, future projections predict that this growth is most likely to remain above six percent in the coming years. The principal pillars of Indonesia's current GDP growth are domestic consumption and investments. The former accounts for around two-thirds of Indonesia's GDP growth and is fueled by a quickly expanding Indonesian middle class. According to a World Bank report, each year seven million people join the ranks of Indonesia's middle class and their subsequent consumptive behavior and demands give rise to new housing and real estate development, thus resulting in Indonesia's increasingly rising cement consumption.

The development of property projects is also supported by Indonesia's stable and historically low benchmark interest rate (5.75 percent since February 2012). And despite a government policy, introduced last year, that stipulates an increase in down payment on mortgages to 30 percent, property projects continued to come off the ground. However, considering that the price of subsidized fuel might be raised, a step which will trigger inflationary pressures, it is expected that Indonesia's central bank will raise its key interest rate accordingly.

The planning of infrastructure projects is also on the rise. The Indonesian government realizes the lack of quantity and quality of the country's infrastructure and is currently focused on increasing investments in this sector; both direct and in cooperation with the private sector through public-private partnerships. This will have an impact on domestic cement demand as large quantities of cement are needed to build the large-scale infrastructure projects (which includes roads, bridges, airports and seaports). In October 2012, the House of Representatives (DPR) agreed on raising infrastructure spending in the 2013 budget to 216 trillion rupiah (a 28 percent increase compared to the 2012 budget), implying that infrastructure spending accounts for around two percent of the country's gross domestic product in 2013; a number which is rather low compared to countries such as China and India which spend almost ten percent of their GDP on infrastructure.

The lack of public funding makes the government turn to the private sector. Generally it is considered ideal to have a 2:1 ratio regarding capital investment in the infrastructure sector; two units supplied by the private sector and one by the government. Although the government is pushing for more investment in Indonesia's infrastructure through the Masterplan for Acceleration and Expansion of Indonesia Economic Development (MP3EI), in which private sector participation is regarded vital, it can be stated that there is more planning than action. Up to now, the private sector is hesitant to play their part as Indonesia is known as having an unproductive bureaucracy, a weak legal system and widespread corruption. There is also no history yet of fruitful public-private partnerships. Taken together, it makes private investors reluctant to engage in risky and expensive long-term investment projects.

Regarding legal certainty and bureaucracy there is a positive development. In late 2011, Indonesia's parliament approved the Land Acquisition Bill. This bill is expected to fasten much needed government infrastructure projects by providing a better regulated legal framework. In sum, this bill will make it easier and less timely for government projects to acquire land, while compensating the previous land owners. On the downside, this law is currently still in an infancy state.

But despite these (potential) bottlenecks, property and infrastructure projects have caused Indonesia's cement production and consumption numbers to soar in recent years, with no end in sight yet. Indonesia witnessed an increase in cement producers (in particular from China), while established companies are expanding through optimizing production capacity in their manufacturing plants. The country's three largest cement makers are all planning investments to increase output capacity, resulting in an expected cement production of 65 million tons in 2013. Expansion of these companies - through the building of new cement plants - mainly takes place on Java.

Indonesia's cement sector is dominated by a few companies:

Largest Indonesian Cement
Domestic Market
Semen Gresik             40%
Indocement Tunggal Prakarsa             33%
Holcim Indonesia             16%
Bosowa Corporation¹              5%

¹ private company