In 2016 cement consumption in Indonesia is forecast to grow by a modest 3 - 4 percent (y/y) only. This is a disappointing result. At the year-start analysts expected to see a much bigger increase in cement consumption this year. These forecasts were also based on rising public as well as private investment in infrastructure projects. Although indeed several big infrastructure projects saw groundbreaking in Indonesia this year, the difficult process of land acquisition was behind the delay of several other projects. Moreover, Indonesia's property sector has still not recovered. In other words, it will require a major improvement in both infrastructure development and the property sector in order to achieve an 8 percent growth pace in Indonesia's cement consumption in 2017.

Although ASI expects Indonesia's cement consumption to rise by about 5 million tons in 2017, Chairman Santoso added that this figure is rather insignificant compared to the increase in cement production. Due to the arrival of foreign cement players and expansion plans of existing cement producers, Indonesia's installed cement production capacity is estimated to grow to 102 million tons in 2017, implying a big oversupply. The existing cement players are now engaged in a fierce battle for market share and one of the key strategies to win this battle is by offering cheaper cement to customers. A side-effect of this strategy is that it causes falling profitability of the cement companies. For some cement players this can cause financial turmoil as they obtained loans (that need to be paid back) for the construction of new plants.

Indonesia's annual installed cement production capacity reached 92 million tons in 2016, hence the country is now the biggest cement producer in East Asia, followed by Vietnam (78 million tons), Japan (60 million tons), and South Korea (55 million tons). However, given the oversupply, the utilization rate of Indonesia's cement production capacity only stands in the range of 65 - 70 percent.

In the 2014-2016 period, 13 new cement factories were built in Indonesia with a combined production capacity of 34 million tons of cement, while cement consumption in the nation only rose by 3 millions tons over the same period. Earlier, ASI already requested the central government of Indonesia to stop the inflow of new cement players into Indonesia by temporarily (until 2019) not issuing new permits in this sector. This policy has also been implemented in Thailand and Vietnam to combat the local cement oversupply.

Read more: Overview of Indonesia's Cement Industry

Meanwhile, global economic growth remains bleak and in terms of exports Indonesia's cement producers have to compete with their counterparts in Vietnam, Thailand, South Korea, Japan, and China. All these countries are also facing a domestic cement oversupply and are therefore eager to export products at attractive rates.

In September 2016 cement sales in Indonesia fell 3.3 percent  (y/y) to 5.64 million tons. This decline was caused by falling cement demand in Indonesia's property sector. In the first nine months of 2016 cement sales have accumulated to 44.7 million tons, up 2.95 percent from cement sales in the same period one year earlier.

Indonesian Cement Sales 2008-2016:

Year Cement Sales
   YoY
Growth
2016¹     63 million  +3.3%
2015     61 million  +1.8%
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 forecast
Source: Indonesian Cement Association (ASI)

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