Therefore, Sinaga does not expect too much from Indonesia's ceramic industry this year. "if Indonesia's ceramic sales in 2016 remain stagnant from last year's sales, then that would already be considered a good result," Sinaga said. Indonesia Investments did not receive an official figure regarding Indonesia's ceramic sales in 2015, but we estimate that the nation's ceramic sales fell 30 percent year-on-year (y/y) to IDR 25 trillion (approx. USD $1.9 billion) last year (from total sales worth IDR 36 trillion in the preceding year).

The year 2015 was a challenging one for Indonesia's ceramic industry due to the sluggish property sector, weak rupiah exchange rate, as well as higher gas prices and higher minimum wages. High gas prices have a major impact on the ceramic industry as this energy source accounts for about 35 percent of ceramic companies' total production costs. Moreover, with around 90 percent of raw materials (for the manufacturing of ceramics) required to be supplied through imports from abroad (particularly chemicals and clay), the fragile rupiah also caused problems. The rupiah depreciated more than 10 percent against the US dollar in 2015.

So far in 2016 the rupiah has been appreciating against the US dollar (nearly 5 percent), while the government announced its plan to cut gas prices (for industrial use) in an effort to support the manufacturing industry (this is part of the government's third policy package released in October 2015). These developments should support local ceramic manufacturers. However, the property sector in Indonesia remained bleak so far this year. Therefore, Sinaga expects the nation's ceramic sales to reach 170-180 million m2 only in the first half of 2016, adding that "those ceramic companies that only focus on the ceramic industry (having no business activities outside this sector) will experience a rough year." Smaller ceramic companies may have to stop production altogether as ceramic stocks are still sufficient for the next two months. This implies that workers need to be sent home.

Indonesian Ceramic Industry 2009-2015:

  2011   2012   2013   2014   2015¹
Revenue (IDR trillion)     13     17     17     24     30     36     25
Growth YoY (%)    -20     30      0     41     25     20    -30

¹ indicates a forecast
Source: ASAKI

Sinaga said the aforementioned gas prices remain a problem for ceramic producers. While crude oil has fallen to around USD $40 per barrel, gas prices have not seen such a dramatic decline. "When crude oil prices rise, gas prices quickly increase accordingly. However, when crude oil drops, gas prices tend to stay flat," Sinaga said. This puts pressure on ceramic companies. Indonesian ceramic producers pay an average USD $9.1 per mmbtu (million metric British thermal units) for the ceramic manufacturing process, significantly higher compared to the USD $3 per mmbtu that ceramic manufacturers in Singapore pay, the USD $3 per mmbtu that manufacturers in Thailand pay, and the USD $5 per mmbtu that manufacturers in India pay. High production costs make Indonesian-made ceramic products less competitive on a international scale. The nation's ceramic manufacturers are therefore still waiting for the government to cut gas prices (as announced in the government's third economic stimulus package).