Not only has Indonesia's cement production capacity risen because the big existing players have invested heavily in business expansion, but also because several foreign cement manufacturers have entered Indonesia over the past couple of years, lured by the attractive prospects in the years 2010-2013 when cement sales in Indonesia rose steeply particularly supported by robust property development.

Therefore, over the past year, Indonesian cement producers and stakeholders have repeatedly urged the government to block the arrival of new players into Indonesia's cement industry.

Overall, Indonesia's cement factories are currently only producing at 60 percent of their total capacity, implying that cement companies' corporate earnings are limited, while they need to repay bank loans or - for the newcomers - see return on investment. This structural cement oversupply situation is expected to continue, at least, until 2021.

In the first half of 2017 cement sales in Indonesia fell 1.3 percent year-on-year to 29.0 million tons from 29.4 million tons in the same period one year earlier. Widodo Santoso, Chairman of the Indonesian Cement Association (ASI), attributed this decline to the long holiday-period (Idul Fitri celebrations fell earlier this year), while infrastructure projects in the eastern part of the country are yet to gain momentum.

Santoso remains hopeful that special central government funds allocated to village development will boost construction of property on the local level, hence boosting cement sales, in the second half of the year.

A positive matter, although rather insignificant compared to domestic sales, is that Indonesia's cement exports have surged 75 percent (y/y) to 1.1 million in the first half of 2017. By the year-end ASI hopes to have seen between 2 - 3 million tons of cement exports from Indonesia. Most of Indonesian cement is shipped to Bangladesh, Sri Lanka, Australia, Timor Leste, African countries and the Middle East.

But the bleak conditions and outlook in Indonesia's cement industry has not impacted too drastically on shares of listed cement manufacturers. Of the four Indonesian cement manufacturers listed on the Indonesia Stock Exchange, only one has seen its shares decline so far in 2017. Shares of Holcim Indonesia have fallen 12.22 percent since the start of the year, while Semen Baturaja saw its shares rise 18.64 percent over the same period, followed by Indocement Tunggal Prakarsa (+15.10 percent) and market leader Semen Indonesia (+10.90 percent).

Indonesian Cement Sales 2008-2016:

Year Cement Sales
2016     62 million  +1.6%
2015     61 million  +1.8%
2014     60 million  +3.3%
2013     58 million  +5.6%
2012     55 million +14.6%
2011     48 million +20.0%
2010     40 million  +4.2%
2009    38.4 million  +1.1%
2008     38 million      -

Source: Indonesian Cement Association (ASI)