Update COVID-19 in Indonesia: 248,852 confirmed infections, 9,677 deaths (21 September 2020)
21 September 2020 (closed)
USD/IDR (14,949) +114.00 +0.77%
EUR/IDR (17,433) +104.02 +0.60%
Jakarta Composite Index (4,999.36) -59.86 -1.18%
Production of heavy equipment in Indonesia fell 23 percent (y/y) to 4,100 units in 2015 due to the weak conditions in the mining and agriculture sectors. Traditionally, most of heavy equipment sales occur in these two sectors. Weak demand caused utilization of the nation's installed production capacity for heavy equipment to fall to 41 percent in 2015 from 51 percent in the preceding year. When fully utilized Indonesia can produce an estimated total of 10,000 units of heavy equipment per year.
Due to the weak conditions, about 4,000 Indonesian workers were sacked in the heavy equipment industry last year. Amid the slowing economy Indonesia's unemployment rate rose to 6.18 percent in August 2015 (the latest available data from Statistics Indonesia) from an unemployment rate of 5.81 percent six months earlier. In absolute numbers, Indonesia's unemployment stands at 7.56 million people.
Although the general economy of Indonesia is expected to accelerate in 2016 (from an estimated 4.7 percent y/y growth pace in 2015 to 5.3 percent y/y this year) the heavy equipment industry may not feel the impact of this improving environment as commodity prices remain persistently low, led by plunging crude oil prices. In this context, agriculture and mining companies are reluctant to boost production, hence leading to curtailed demand for heavy equipment.
Jamaludin, Chairman of the Indonesian Heavy Equipment Association (Hinabi), expects heavy equipment sales to remain stagnant in 2016. He sees demand originating from the construction sector, especially now the central government is eager to boost infrastructure development across the archipelago. Demand from the mining and agriculture sectors, however, will remain low.
In fact, Jamaludin says Indonesia's heavy equipment sales could rise up to 5,000 units in 2016 provided that the government makes it mandatory to use domestically-produced heavy equipment in the infrastructure development projects. It would also help if the government would limit imports of used heavy equipment as it is hard for Indonesian-made heavy equipment units to compete with these used units in terms of prices. An Indonesian-manufactured heavy equipment unit is relatively expensive as it is dependent on imports of components from abroad. However, considering the heavily weakened rupiah (against the US dollar) such imports have become costly, hence driving up prices.
Without additional government support, Jamaludin expects Indonesia's heavy equipment sales at 4,000 units in 2016, almost unchanged from last year's figure. In 2015, the Indonesian Heavy Equipment Association (Hinabi) had to revise its forecast for heavy equipment sales drastically from an initial 6,000 units to 4,000 units.
Sales of Komatsu units rose 86 percent month-on-month to 132 in November 2015 according to data from United Tractors, the largest distributor of heavy equipment in Indonesia (especially orders from construction companies rose sharply). However, the sales figure was down 22 percent from sales in the same month one year earlier.
In 2016 United Tractors, which commands a 36 percent market share in Indonesia's heavy equipment industry, expects to see a 9.5 percentage point decline in Komatsu sales to 1,900 units from an earlier projection of 2,100 units. The downward revision was made due to persistently low commodity prices.