Semen Indonesia's additional cement production capacity originates from the completion of construction of two new plants: (1) Semen Padang unit Indarung VI, and (2) the Rembang factory. Both facilities have a production capacity of around 3 million tons of cement per year, each. By September 2017 both plants should become operational.

The USD $374 million Rembang plant in Central Java was plagued by a one-year delay after Indonesia's Supreme Court revoked the environmental permit, ruling in favor of local farmers who complained that activities at the Rembang plant would damage the unique local ecosystem and thus damage farmers' agricultural output.

This Rembang case was another setback for the issue of legal certainty in Indonesia (which is one of the key matters that undermines the attractiveness of Indonesia's investment climate). When an environmental permit has been obtained (as well as all other necessary permits) and a new plant is in the later stages of its development, then it should not be possible to suddenly revoke permits, potentially leaving the investor behind with a costly plant that cannot be used. If this can happen to a state-controlled entity (the central government owns a 51 percent stake in Semen Indonesia), then it can surely happen to a privately-held (foreign) entity.

Earlier we reported that Semen Indonesia is studying possibilities to establish two new cement factories in Aceh (Sumatra) and Kupang (East Nusa Tenggara), in an effort to further strengthen the company's portfolio and distribution network.

Prior to the additional facilities, Semen Indonesia owns and operates four cement factories in East Java (Gresik and Tuban), West Sumatra and South Sulawesi. It also owns a factory in Vietnam (Semen Thang Long) that focuses on the domestic market of Vietnam.

Agung Wiharto, Corporate Secretary of Semen Indonesia, earlier stated that Semen Indonesia utilizes 85-90 percent of its total installed cement production capacity, while about 5-10 percent of the company's total cement production is exported abroad. Considering the cement oversupply situation in Indonesia, a focus on export growth is considered the correct path to boost the company's earnings.

Read more: Overview of Indonesia's Cement Industry

Semen Indonesia sold 12.8 million tons of cement in H1-2017, up 3.5 percent from cement sales in the same period one year earlier. However, its export performance surged by a whopping 344.2 percent (y/y) to 839,858 tons (impressive growth but coming from a low base) over the same period.

Cement demand has remained bleak in Indonesia so far in 2017. In the January-July 2017 period a total of 34.6 million tons of cement were consumed domestically, up 4.4 percent (y/y) from the same period one year earlier. Despite bleak demand and the structural cement oversupply situation in Indonesia (Indonesia's total installed annual production capacity is estimated to have risen to 106.3 million tons, while demand is not expected to reach 70 million tons in 2017), Semen Indonesia remains focused on business expansion, hence actually exacerbating the oversupply situation. However, the company has deep pockets and can therefore "weather the storm", while many small cement producer are on the brink of collapse due to low cement prices (amid fierce competition).

So far in 2017 shares of Semen Indonesia have climbed 18.26 percent to IDR 10,850 a piece.

Stock Quote Semen Indonesia - SMGR: