Update on Indonesian Cement Industry: Prospects for 2014 and Beyond

General Chairman of the Indonesian Cement Association (ASI) Widodo Santoso said that domestic cement sales declined in July 2014 as trucks were not allowed to drive on the main roads used by Indonesians for the annual mudik tradition. The term mudik refers to the exodus of Indonesian workers from the cities back to their hometowns ahead - and just after - Lebaran. During the mudik period, the main roads around the large Indonesian cities are burdened by millions of Indonesian travellers, and therefore big trucks (for example cement trucks) are banned on certain roads (to relieve some pressure), but which leads to a slowdown in cement distribution.

According to Santoso the sharp decline is no cause for concern as the month of July was characterized by few working days amid Islamic celebrations. He expects that cement sales in Indonesia will accelerate in the next five months as the central and regional governments are expected to spend more funds from the budgets on infrastructure projects. For example, the toll road from Medan to the new airport of Kuala Namu (North Sumatra) will start soon. Toll roads are also expected to be constructed in West, Central and East Java. Furthermore, the construction of new power plants and smelters (in line with the new 2009 Mining Law) will raise demand for cement. Lastly, construction of social housing is expected to grow in the second half of 2014. As such, the ASI still targets a cement sales growth figure in the range of 4 to 5 percent for 2014.

Indonesian Cement Sales 2008-2014:

Year	Cement Sales	YoY Growth
2014	61 million¹	+5.1%
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	-

^{¹ forecast
Source: Indonesia Cement Association (ASI)}

According to data from the ASI, July cement sales in Kalimantan fell 29 percent (yoy) to 273,426 tons, followed by a 28 percent decline on Java to 2.1 million tons, a 26 percent decline on Sumatra to 751,476 tons, and a 12.3 percentage point fall on Sulawesi to 289,124 tons. In the eastern region of Indonesia, however, cement sales grew. For example, in the Moluccas and Papua region cement sales increased 21.6 percent (yoy) to 65,039 tons in July 2014.

Influence of Higher Subsidized Fuels on Cement Prices?

It remains unknown whether the Indonesian government will raise prices of subsidized fuels in 2014 (this step is needed to safeguard the country’s financial fundamentals as expensive oil imports burden the government's budget balance as well as the current account balance). If prices of fuel will indeed be raised, then cement prices may rise as well to offset the impact of higher logistic costs. In June 2013, the Indonesian government raised prices of subsidized fuels by an average of 33 percent. This led to high inflationary pressures in the next three months.

Preparing for a Peak of Indonesian Cement Sales in 2017

Investasi Sarana Mandiri expects that Indonesian cement sales will peak at 95-97 million tons in 2017, while domestic production capacity is expected to reach 90 to 95 million tons by the same year. Currently, cement production capacity in Indonesia stands at 68 million tons per year. Therefore, Indonesian cement producers need to enhance production capacity to meet future cement demand. Semen Indonesia, the largest cement producer of Indonesia, is planning to construct new cement plants in Padang and Rembang in an effort to add a total of 6 million tons of cement per year to the current production capacity figure of 30 million tons per year. Total investment for these two plants is about IDR 7 trillion (USD $598 million). Meanwhile, Indocement Tunggal Prakarsa, Indonesia's second largest cement producer, is planning to invest USD $1.2 billion for the construction of two new plants in Central Java and North Sumatra. This should raise Indocement’s total installed design capacity from 18.6 million tons of cement in 2014 to around 24 million tons by 2018.

Largest Indonesian Cement Companies	Domestic Market Share
Semen Indonesia	40%
Indocement Tunggal Prakarsa	32%
Holcim Indonesia	16%
Bosowa Corporation¹	5%

^{¹ private company}

Share Performance of Indocement (INTP) versus Semen Indonesia (SMGR):

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