The 3.48 percent (y/y) growth pace in H1-2018 is rather flat growth, particularly considering the domestic cement sales growth figure touched 5.8 percent (y/y) in the January-May 2018 period. Problematically, demand for cement fell drastically in June 2018 because of the (later half of the) Ramadan month and subsequent Eid al-Fitr celebrations. In this period many projects come to a standstill, while big trucks (including those that transport cement) are prohibited from using certain roads (in an effort to reduce traffic congestion during the mudik period when millions of city people travel back to their places of origin to spend a couple of days with their families). The Eid al-Fitr holiday was even longer than usual in 2018 as the government added a couple of days to the national public holiday. Traditionally, cement demand rebounds some two weeks after the Eid al-Fitr holiday.

Considering these Islamic celebrations fell earlier in 2018 (compared to last year), they have a bigger impact on Indonesia's H1-2018 cement sales figures. On the other hand it means that there is more room for domestic cement sales growth in the second half of the year. However, this will also depend on Indonesia's economic growth pace, property development and infrastructure development.

While Indonesia's economic growth is likely to fall well below the government's assumption of 5.4 percent (y/y) that was set in the 2018 State Budget, there may be room for growth in the country's property sector after Bank Indonesia eased regulations regarding down payments (to offset the impact of a higher benchmark interest rate). Meanwhile, since the government announced that it may postpone certain imports that are related to government-led infrastructure development projects (in an effort to curtail the country's imports, hence improve the trade balance), we are concerned that this could cause a delay in infrastructure development.

Therefore, with the possible exception of some growing activity in Indonesia's property sector, there seems few reason to expect a marked increase in domestic cement sales in Indonesia in the remainder of 2018.

Cement exports, however, are a different story. Indonesia's cement and clinker exports soared 134 percent (y/y) to 2.66 million tons in the first half of 2018. This is great growth, albeit coming from a low base. Considering Indonesia's installed cement production capacity now almost touches 110 million tons per year, while domestic cement demand may have difficulty to exceed well beyond 70 million tons in 2018, cement producers are encouraged to focus on export markets (and tap the potential of new lucrative markets).

Indonesian Cement Sales 2008-2018:

Year Cement Sales
(1st Half)
   30.0 million  +3.6%
2017    66.4 million  +7.6%
2016     62 million  +1.6%
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      -

Source: Indonesian Cement Association (ASI)

Cement Consumption in Indonesia (in million tons):

Region   H1
Java 16.44 16.78  +2.1%
Sumatra  6.02  6.48  +7.5%
Kalimantan  1.81  1.96  +8.4%
Sulawesi  2.33  2.42  +4.0%
Nusa Tenggara  1.70  1.67  -1.9%
East Indonesia  0.66  0.69  +4.2%
Total Domestic Sales Indonesia 28.99 30.03  +3.5%
Exports  1.13  2.66 +134%
Total Domestic Sales + Exports 30.12 32.69  +8.5%

Source: Indonesian Cement Association (ASI)