Production Costs in Indonesia's Ceramic Industry Could Fall 35%
The Indonesian Ceramic Industry Association (Asaki) estimates that production costs in Indonesia's ceramic industry could decline up to 35 percent now the government plans to lower the gas price for industrial usage. Elisa Sinaga, Chairman of the Asaki, said Indonesian ceramic producers currently pay an average USD $9.1 per mmbtu (million metric British thermal units) for the ceramic production process, considerably higher than the gas prices that manufacturers pay in Singapore, Thailand, and India. This difference makes Indonesian ceramic products less competitive.
The gas price accounts for between 30 and 40 percent of total ceramic production costs in Indonesia. Therefore, stakeholders in the nation's ceramic industry were happy to learn that the Indonesian government planned to lower gas (and electricity) prices for industrial usage in its third economic policy package (unveiled in October 2015), one of the series of policy packages designed by the government to boost overall economic growth. However, despite this announcement - and despite low crude oil prices - gas prices remained high in Indonesia's ceramic industry in both Q4-2105 and Q1-2016.
Through Presidential Regulation No. 40/2016, the government can lower gas prices for industrial usage if these prices exceed the USD $6 per mmbtu mark (this policy is effective per 1 January 2016). Whether the government indeed cuts gas prices in a specific industry will depend on several matters including domestic and international gas prices, domestic purchasing power, and the value-added significance of gas usage in a specific industry. The industries that are eligible to receive such a cut in energy prices include the fertilizer, petrochemical, oleo-chemical, steel, ceramic, glass, and rubber gloves industries.
Asaki Chairman Sinaga says the lower gas price would not immediately trigger rising ceramic sales in Indonesia because these sales are dependent on a number of factors, including the performance of the country's property sector, overall economic growth, and interest rates for credit disbursement. However, a lower gas price would surely have a major positive impact on production costs of Indonesian ceramic producers. Currently, production costs in Indonesia's ceramic industry are high - implying output is less competitive compared to ceramic products in neighboring peers - primarily due to the high gas price. Whereas Singaporean ceramic producers pay USD $3 per mmbtu, Thai manufacturers pay USD $3 per mmbtu, and Indian manufacturers pay USD $5 per mmbtu, Indonesia's ceramic producers pay an average USD $9.1 per mmbtu for the ceramic production process.
Regarding ceramic sales in Indonesia in 2016, Sinaga expects to see an improving performance supported by government-led infrastructure development and an improving property industry. Sinaga expects ceramic sales to reach between 170 - 180 million square meters in the first half of 2016. Last year Indonesia's ceramic sales were curbed by the continuation of the nation's economic slowdown, the sharply depreciating rupiah exchange rate, and the high gas price. These were reasons for various Indonesian ceramic manufacturers to (temporarily) close their business. In full-year 2015 Indonesia's ceramic sales fell 30 percent to 360 million square meters.
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