What about Indonesia's Cement Industry in 2016?

Indonesia's cement sales are expected to rise around 6.6 percent to 65 million tons in 2016 supported by the government's commitment to enhance infrastructure development across the archipelago. Meanwhile, with the nation's economic growth expected to accelerate (after six years of slowdown) to 5.3 percent (y/y) in 2016, purchasing power will strengthen and this should give rise to property development (particularly if Bank Indonesia will cut its still relatively high interest rate regime).

Although Java (the most populous island of Indonesia) will continue to be the largest consumer of cement, the island of Sumatra is expected to see a jump in cement consumption in 2016 due to construction of (parts of) the Trans-Sumatra toll road and the Besitang-Binjai railway.

However, Indonesia's traditional top three cement producers - Semen Indonesia, Indocement Tunggal Prakarsa and Holcim Indonesia (together controlling about 85 percent of the market in Indonesia) - have to face rising competition as the promising perspectives of Indonesia's cement industry in recent years attracted the arrival of new (foreign) players or made existing players decide to expand production capacity. ASI Chairman Santoso said four new cement plants will become operational this year, adding 9.1 million tons to the nation's total cement production capacity. As such, the country's cement production capacity (estimated at 92 million tons), by far, exceeds domestic cement demand (estimated at 65 million tons) in 2016. This implies fierce competition, something that should erode the profit margins of cement producers.

For example, the Siam Cement Group (SCG) - largest cement producer of Thailand - has constructed a new cement plant in Sukabumi (West Java) with an installed production capacity of 1.8 million tons per year. Its cement is sold under the "SCG" brand. A bigger cement supply implies that there remain downward pressures on cement prices (prices had already tumbled after, in early 2015, Indonesian President Joko Widodo ordered all state-controlled cement producers to lower cement prices by IDR 3,000 per bag in order to boost growth in the infrastructure and property sectors, a move that also led to price adjustments of private cement producers in order to stay competitive).

Further Reading: Overview of Indonesia's Cement Industry

Meanwhile, on the Indonesian island of Kalimantan cement sales fell 30 percent (y/y) in January 2016. This is not only the result of weaker purchasing power on the resource-rich island amid low commodity prices but also due to the aggressive discount policy of the local unit of China's cement giant Anhui Conch. In late 2014, the company's USD $202 million cement plant in South Kalimantan became operational. This plant - the company's only plant in Indonesia - has an installed capacity of 1.5 million tons of cement per year.

Although Anhui Conch does not have a cement plant in the further eastern located regions of Indonesia, the company still manages to have an influence on cement sales in these regions through cement imports from its factories in China. With transportation costs cheap at only USD $5 per ton it is a lucrative business for Anhui Conch to import cement from China, particularly as the price of cement is higher in Indonesia than in China. Whereas a ton of cement costs USD $54 in China, it costs USD $97 in Indonesia.

Due to the influx of newcomers and their aggressive discount policies, the combined market share of Indonesia's traditional top three cement producers (Semen Indonesia, Indocement Tunggal Prakarsa and Holcim Indonesia) has fallen 0.3 percent in January 2016 compared to the same month one year earlier. On the other hand, however, this limited decline also reflects the strength of these three existing forces in Indonesia's cement industry.

Market Share Indonesia's Top Three Cement Producers:

Company	Market Share       2005	Market Share       2010	Market Share       2015
Semen Gresik	46.8%	43%	43.6%
Indocement Tunggal Prakarsa	28.4%	31%	29.1%
Holcim Indonesia	13.9%	14%	15.4%

^{Source: Bisnis Indonesia}

Indonesian Cement Sales 2008-2016:

Year	Cement Sales	YoY Growth
2016¹	65 million	+6.6%
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	-

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

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