Indonesian cement sales have slowed and may not achieve the target set for 2014. In the first half of 2014, the country’s domestic cement sales totaled 28.9 million tons, a 3.9 percentage point increase from the same period last year, well below the growth target of 6 percent (year-on-year, yoy). However, this development is no surprise as economic growth of Indonesia has slowed in recent years. Cement sales, a key indicator of construction activity (infrastructure and property development) are closely linked to general GDP growth.
Chairman of the Indonesian Cement Association (ASI) Widodo Santoso hopes to see a better result in the second half of 2014 (a cement sales growth pace of 6 to 8 percent yoy) in order to record at least a 5 percentage point growth pace through 2014.
According to data from the ASI, cement consumption in the January-June 2014 period grew most rapidly (5.7 percent yoy to 2.1 million tons) on the island of Sulawesi. The islands of Java and Sumatra, which both traditionally absorb most of Indonesia’s cement production, still posted growth in cement consumption as well. Cement consumption on Java, Indonesia’s most populous island, increased 5.6 percent (yoy) to 16.3 million tons in the first half of the year. Meanwhile, on Sumatra cement consumption grew 1.4 percent (yoy) to 6.1 million tons in the same period.
Factors that caused a slowdown of cement sales in Indonesia in the first half of 2014 were the elections and new rules that limit property ownership. Due to the legislative and presidential elections many construction projects have been postponed as businesses want to have more political and economic certainty. Meanwhile, Bank Indonesia imposed stricter loan-to-value ratios for mortgages in mid-2013 as it detected speculative buying which might have led to a property bubble, and it raised its benchmark interest rate (BI rate) gradually to 7.50 percent in late-2013 (making it more expensive to borrow money).
Indonesia’s gross domestic product (GDP) growth slowed to 5.21 percent in the first quarter of 2014.
Indonesian Cement Sales 2008-2014:
|Year|| Cement Sales
|| YoY Growth
Source: Indonesia Cement Association (ASI)