15 January 2020 (closed)
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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.
Santoso explained that various government-led infrastructure projects, including toll road projects in Kalimantan, Sulawesi and Sumatra, were plagued by land acquisition problems as well as rainy weather conditions.
It is interesting to note that in the first half of 2016 Indonesia's cement sales actually grew 3.1 percent (y/y), a figure that was reasonably satisfying. However, in the second half of the year, cement sales fell 2.6 percent on a year-on-year (y/y) basis. Declining sales particularly occurred in the last four months 2016. Santoso attributed the declining cement sales in the last four months of 2016 (declining on a year-on-year basis) to the fact that there had occurred a peak in disbursement of the government's infrastructure budget in the September-December 2015 period. In 2016, however, disbursement of the infrastructure budget was more gradual throughout the year (although spending was rather weak in the first quarter) and not concentrated at the year-end like the preceding year.
However, wetter-than-usual weather conditions in the last quarter of 2016, caused by the La Nina weather phenomenon, could also have played a part by disturbing progress with construction projects.
When looking at the table below, cement sales in Java and Kalimantan were particularly disappointing in 2016. However, rising cement sales in Sumatra and Sulawesi - on the back of road, dam, smelter and power plant construction - managed to offset the decline of cement sales on the islands of Java and Kalimantan.
Indonesian Cement Sales in Full-Year 2016 per Island/Region:
|Bali & Nusa Tenggara||3.5 million||+1.0%|
|Maluku & Papua||1.5 million||+6.0%|
Source: Indonesian Cement Association (ASI)
Santoso added that Indonesia is now the largest cement market in the Asia-Pacific region, followed by Vietnam (55.7 million tons), South Korea (49.6 million tons), Japan (43 million tons), and Thailand (29 million tons). Also in terms of annual installed cement production capacity, Indonesia is the largest in this region with a capacity of around 100 million tons.
However, a simple calculation shows that Indonesia's cement industry is plagued by a major oversupply (with annual production capacity at 100 million tons while demand only reached 62 million tons in 2016). Therefore, ASI requests the central government to support existing cement producers by (temporarily) disallowing permits for the construction of new cement plants across Indonesia. ASI Chairman Santoso said an overcapacity of 20 percent would still be manageable. However, if it touches 40 percent (as is the case now) then it forms a major problem for existing cement players. A price war leads to declining earnings of existing cement players.
A focus on exports would be a good strategy. However, Indonesian cement exporters will have to face tough competition from cement players in other Asian countries that are also aggressively trying to export their products.
According to data from the Indonesian Industry Ministry, investment in Indonesia's cement industry stood at IDR 15 trillion (approx. USD $1.1 billion) in full-year 2016. These investments were done by both local and foreign players.
Indonesian Industry Minister Airlangga Hartarto said Indonesia's per capita cement consumption now stands at 243 kilogram (per year). This number is still far below per capita cement consumption figures in regional peers. For example, in Malaysia per capita cement consumption stands at 751 kilogram, while in Thailand and Vietnam the figure is 443 kilogram and 661 kilogram, respectively.
Of the total of 62 million tons of cement sold in Indonesia in full-year 2016, about 40 million tons were used in the property sector (including the government's One Million Houses program).
What about Indonesian Cement Sales in 2017?
ASI Chairman Santoso expects the nation's cement sales to 4 - 5 percent (y/y) in 2017 supported by government-led infrastructure development and the government's tax amnesty program.
Indonesian Cement Sales 2008-2016:
Source: Indonesian Cement Association (ASI)