Cement consumption in Indonesia fell to 5.27 million tons in January 2017, down 2.3 percent year-on-year (y/y) from the same month one year ago. This decline was blamed on the intense rainfall in the nation's regions that managed to obstruct progress with various projects. Widodo Santoso, Chairman of the Indonesian Cement Association (ASI), said the decline in cement demand was seen in nearly all regions, including Sumatra, Java, Kalimantan, and Nusa Tenggara.

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Domestic cement consumption in Indonesia in full-year 2016 stood at 62 million tons, rather stagnant from cement demand in the preceding year and thus the 65 million tons cement sales target of the Indonesian Cement Association (ASI) in 2016 was not achieved. ASI Chairman Widodo Santoso confirmed that Indonesian cement consumption was not in line with his institution's prediction. Moreover, weak cement sales also indicate that government-led infrastructure development has not been running smoothly yet.

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Cement consumption in Indonesia is expected to rise around 8 percent (y/y) to 68 million tons in 2017 from an estimated 63 million tons this year. This optimistic projection was expressed by Widodo Santoso, Chairman of the Indonesia Cement Association (ASI). Government-led infrastructure projects are believed to be the main pillar of support for next year's rising cement consumption in Southeast Asia's largest economy, particularly the one million houses program as well as other strategic projects.

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Indonesian cement producers request the government not to issue new permits for the construction of cement plants in Indonesia. Such a moratorium should be put in place until at least 2019 as the nation's existing cement producers fear further falling profit due to the structural cement oversupply. Indonesia's total installed cement production capacity has now reached 92 million tons (per year), while domestic cement demand is expected to reach 65 million tons only in full-year 2016.

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Six cement factories with a combined annual production capacity of 13.1 million tons will be ready to start operations in the second half of 2016. These six cement plants are owned by Semen Bosowa, Semen Tiga Roda, Conch Semen, Semen Indonesia (two plants) and Semen Manokwari. Widodo Santoso, Chairman of the Indonesian Cement Association (ASI), said the development of the new plants will create an even larger cement oversupply in Indonesia. Annual national cement production capacity now stands at around 100 million tons, while demand is estimated at 63 million tons in 2016.

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Domestic cement sales in Indonesia climbed 3.1 percent year-on-year (y/y) to 29.48 million tons in the first half of 2016. Widodo Santoso, General Chairman of the Indonesian Cement Association (ASI), said rising cement demand in Indonesia is particularly supported by the construction of power plants, smelters and other infrastructure projects outside the island of Java. However, he added that the cement sales growth figure in H1-2016 is slightly below the target of ASI.

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Cement exports from Indonesia have surged sharply in the first five months of 2016. Rising cement export is a good strategy to tackle the domestic oversupply of cement in Indonesia. Due to the influx of new cement producers as well as the expansion programs of existing cement producers in Southeast Asia's largest economy, the nation's cement production capacity has nearly reached 100 million tons per year, while domestic demand may only reach 65 million tons in 2016.

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Indonesia's cement sales rose 6.2 percent (y/y) to 5.1 million tons in May 2016, the highest monthly figure so far in 2016. As the property sector of Indonesia remains subdued amid sluggish demand and development, growth in cement sales is regarded to be the result of infrastructure development. Data from the Indonesian Cement Association (ASI) show that Indonesia's cement sales total 24.1 million tons in the first five months of 2016, up 3.9 percent (y/y) from sales in the same period one year earlier.

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Cement sales in Indonesia in the first four months of 2016 reached 19.3 million tons, up 4.2 percent (y/y) from the January-April period one year earlier, supported by additional cement supplies by three newcomers in Indonesia's cement industry and higher cement demand. The three newcomers supplied 600,000 tons of cement in the first four months. Trimegah Securities noted that without these additional supplies, Indonesia's cement sales in January-April 2016 would only have increased 0.7 percent (y/y).

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The cement manufacturers in Indonesia are in need of participating in a cement price war in order to gain market share in Southeast Asia's largest economy. According to analysts a price war cannot be avoided due to the influx of new players in Indonesia's cement industry. This influx causes rising cement production capacity in Indonesia, while domestic cement demand remains sluggish. The new and smaller cement players offer low prices to gain market share. The bigger and long-term established cement companies may need to join in this price war in order to defend their market share.

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Indocement Tunggal Prakarsa (INTP), Indonesia's second-largest cement producer, is planning to invest between US $260 and $320 for the establishment of three new cement factories. One of these factories - with a production capacity of 4.4 million ton per year - will be built on brownfield land (in Citeureup, West Java), while the other two will be built on greenfield land and will have a combined production capacity of about five million ton annually.

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