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Last month, Indonesia's cement sales increased by 15 percent to 4.65 million metric tonnes compared to cement sales in January last year. Strong GDP growth of over six percent annually in recent years has caused a rise in property development and infrastructure projects. Per capita cement consumption in Indonesia - which currently stands at around 200 kilogram per year - is still one of the lowest in Asia.
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Despite the challenging conditions, Indonesian cement producer Cemindo Gemilang decided to offer 2.71 billion shares, equivalent to 15.0 percent of the company’s total shares, to the public through an initial public offering (IPO) on the Indonesia Stock Exchange (IDX). With the IPO price set at the range of 600-800 per share, the cement producer eyes to collect around IDR 1.89 trillion (approx. USD $133 million) through this corporate move.
Between the years 2011 and 2013 Indonesia’s cement industry seemed to be a goldmine. Double-digit growth in annual domestic cement sales – supported by strong growth in the country’s property sector, particularly on the islands of Java and Sumatra – attracted new foreign investment in cement production facilities, while established cement producers in the Archipelago invested in expansion of their cement production facilities.
Semen Indonesia, the largest cement producer in Indonesia, announced in November 2018 that it has signed a conditional sales & purchase agreement with LafargeHolcim Ltd to acquire an 80.6 percent stake in Holcim Indonesia, the third-biggest cement producer in Indonesia.
Cement sales were good in January 2018 for Indonesian cement manufacturers, growth that is attributed to rising cement demand on the back of the government-led infrastructure development program, particularly the construction of toll roads. Indonesia's cement consumption rose 9.9 percent year-on-year (y/y) to 5.68 million tons in January 2018.
Over the past five years Indonesia's annual cement production capacity surged to above 100 million tons, while domestic cement consumption has difficulty to reach beyond 65 million tons (and Indonesia exports relatively few cement). The subsequent oversupply condition puts significant pressure on cement prices. So, what are the strategies of Indonesian cement producers in 2018?
Cement consumption in Indonesia grew 5.7 percent year-on-year (y/y) to 41.1 million tons in the January-August 2017 period (compared to the same period one year earlier). This can be labelled a rebound compared to bleak growth of 1.8 percent (y/y) and 1.6 percent (y/y) in 2015 and 2016, respectively. This year Indonesian cement demand could in fact reach 64 million tons.
While domestic cement demand remains bleak, Indonesia's cement producers managed to raise their level of production capacity utilization due to a surge in exports. However, export growth will only slightly improve the structural oversupply situation in Indonesia's cement market. With installed annual production capacity estimated at 103.8 million tons of cement, nearly 40 million tons of capacity remains unused.
Although the Indonesian government has been eager to improve the nation's investment climate in a bid to attract more foreign direct investment (FDI) and thus boost economic growth of Indonesia, it is widely known that conditions in Indonesia's investment climate remain somewhat troublesome, reflected by the nation's mediocre ranking in the World Bank's Ease of Doing Business index 2017. Here it ranks 91 out of 190 countries across the globe.
For Indonesian cement producers it is vital to maintain their market share amid ongoing difficult times. With Indonesia's total installed annual cement production capacity now being around 100 million tons, while domestic demand is only expected to reach 65 million in 2017, cement players are facing weak prices amid a big oversupply, while foreign demand for Indonesian cement is yet to grow. Meanwhile, due to the arrival of various new cement players in Indonesia in recent years, competition for market share has become increasingly fierce.
Cement sales in Indonesia weakened 5.4 percent month-on-month (m/m) - or 5.3 percent on an annual basis - to 5.7 million tons in November 2016. However, in the first 11 months of 2016 Indonesian cement sales reached a total of 56.5 million tons, up 2.8 percent (y/y) from domestic cement sales in the same period one year earlier. This modest growth is supported by government-led infrastructure development as well as smelter and power plant development. The housing market, however, remained flat. Also intense rainfall managed to curtail the progress of projects. Below, a snapshot of our latest report.
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