Darmawan Junaidi, Finance Director at Semen Indonesia, could not give an indication of the investment that is required to realize the establishment of the two cement factories but he did inform that - if the new cement plants are to be constructed - it will be financed through the company's capital expenditure budget (composed of 20 percent of last year's revenue). This budget is used for the acquisition of assets and the development of new facilities.

Regarding the factory in Aceh (in the Pidie Jaya regency), Junaidi explained it is actually a project of another cement manufacturer but was acquired by Semen Indonesia (now owning a 52 percent stake in the project). This factory should be ready for operations by 2020-2021. Meanwhile, regarding the Kupang factory, Semen Indonesia is still engaged in the land acquisition process. Land acquisition is one of the key bottlenecks in Indonesia that often causes the delay of construction or infrastructure projects. The Kupang facility is targeted to be completed by 2020.

Semen Indonesia already owns and operates four cement factories in Gresik and Tuban in East Java, West Sumatra and South Sulawesi. Combined these factories can produce a total of 35.5 million tons of cement per year, hence the company is Indonesia's largest cement producer.

The new factories are also an effort to safeguard its position as the market leader in Indonesia's cement industry. Semen Indonesia has the best-developed distribution network across the Archipelago, while it also owns 14 harbors. It now controls about 34 percent of the domestic cement market.

Read also: Overview of the Cement Industry of Indonesia

However, without the new factories, Indonesia already has a cement oversupply with total installed annual production capacity having risen to 106.3 million tons, while demand is not expected to reach 70 million tons in 2017 (this oversupply puts downward pressure on cement prices). Also on the international market there exists a cement oversupply situation and therefore rapid export growth is unlikely. Still, for the long-term, there are plenty of opportunities for growth of cement players because Indonesia requires a lot of property and infrastructure development (in the decades to come).

Indonesia's cement plants are currently not working at full capacity. In full-year 2016 Indonesian cement manufacturers produced a total of 85 million tons of cement, while domestic demand only reached 62 million tons.

Overview Cement Industry Indonesia 2016-2017:

Subject Data
Number of Companies 15
Total Annual Installed Capacity 106.3 million tons
Actual Production 75-85 million tons
Average Demand Growth (past 5 years) 5%
Utilization Rate of Factories 70%
Domestic Consumption 62-69 million tons

Source: Bisnis Indonesia