The cement manufacturers in Indonesia are in need of participating in a cement price war in order to gain market share in Southeast Asia's largest economy. According to analysts a price war cannot be avoided due to the influx of new players in Indonesia's cement industry. This influx causes rising cement production capacity in Indonesia, while domestic cement demand remains sluggish. The new and smaller cement players offer low prices to gain market share. The bigger and long-term established cement companies may need to join in this price war in order to defend their market share.
A report from Trimegah Securities says the new cement companies that have set up cement plants in Indonesia over the past couple of years (attracted by sharply rising cement sales in Indonesia during the years 2010-2012 when Indonesia's property sector was booming strongly), are offering cement at prices about 5 - 10 percent lower than the three established cement companies - Semen Indonesia, Indocement Tunggal Prakarsa and Holcim Indonesia - charge customers in the Jakarta area.
Also outside the Jakarta region this phenomenon is detected. For example, Anhui Conch (the local unit of China's cement giant Anhui Conch) offers a ten percent discount on bags of cement in South Kalimantan. In late 2014, the Anhui Conch's USD $202 million cement plant in Tabalong (South Kalimantan) became operational. This plant - the company's only plant in Indonesia - has an installed capacity of 1.55 million tons of cement per year. Due to its attractive prices, Anhui Conch gained market share in South Kalimantan, particularly at the expense of Indocement Tunggal Prakarsa's (local) market share.
Trimegah's report says a total of five (relatively) new players will give rise to tight competition in Indonesia's cement industry this year. Besides the aforementioned Anhui Conch there is Pan Asia (with its brand Semen Bima) that owns a cement plant in Ajibarang (Central Java) with an annual production capacity of 2 million tons. Thirdly, the Siam Cement Group (SCG) - Thailand's largest cement producer - dveloped a cement plant in Sukabumi (West Java) with an installed production capacity of 1.9 million tons of cement per year. Fourthly, Cemindo Gemilang opened its plant in Banten (West Java) with a 4 million tons (per year) production capacity. Lastly, Jui Shin Indonesia opened its factory (with an installed annual production capacity of 2 million tons of cement) in Karawang (West Java).
As such, the arrival of new players (with aggressively discounted prices) and Indonesia's strongly rising total installed production capacity will make it tough for Indonesia's big three cement producers to raise their cement prices as this would weaken their market shares. As an example of declining market share Trimegah Securities stated that the market share of Indocement Tunggal Prakarsa has fallen from 27.4 percent in January 2016 to 26.8 percent one month later. Trimegah says that due to increased competition in the cement market the only real way to win market share is by offering cement at cheaper rates (limiting production costs only is not enough), particularly as long as cement demand from Indonesia's property sector has not shown a significant rebound.
Semen Indonesia also experienced declining market share. The company's cement sales fell 5.8 percent (y/y) to 1.8 million tons of cement in February 2016. Subsequently its market share fell from 44.6 percent in February 2015 to 40.7 percent in February 2016. Holcim Indonesia, on the other hand, managed to raise its market share to 14.2 percent (from 12.8 percent) in February 2016 due to the company's strategy to enhance focus on cement sales on Sumatra after it acquired Lafarge Cement Indonesia (Semen Andalas).
The Indonesian Cement Association (ASI) said Indonesia's total cement sales reached 4.5 million tons in February 2016, up 3.4 percent (y/y) from sales in the same month one year earlier. However, with the country's annual installed production figure estimated to have exceeded 100 million tons of cement, while the country's cement demand is only estimated at 66.4 million tons in 2016 there exist heavy downward pressures on Indonesian cement prices. ASI Chairman Widodo Santoso sees cement sales rising modestly in 2016 to 63 million tons, supported by the government's push for infrastructure development and the establishment of smelters and power plants by the private sector.
Indonesian Cement Sales 2008-2016:
| Cement Sales
| YoY Growth
¹ ASI forecast
Source: Indonesian Cement Association (ASI)