Heavy Equipment Sector Indonesia Remains under Pressure
Production of heavy equipment in Indonesia continues to slide. In the first half of 2016 Indonesia produced a total of 1,471 heavy equipment units, down 35 percent (y/y) from 2,256 units in the same period one year earlier. Meanwhile, utilization of the nation's installed heavy equipment production capacity plunged from 40 percent to 30 percent over the same period. Overall, the heavy equipment sector of Indonesia has been plagued by weak conditions in the mining and agriculture sectors. The construction sector now forms the main source of heavy equipment sales.
Jammaludin, Chairman of the Indonesian Heavy Equipment Manufacturers Association (Hinabi), stated that production of heavy equipment in Indonesia has been lower-than-estimated in the first half of the year. Contrary to expectations, a surge in construction projects in Indonesia (led by the government's focus on infrastructure development) has not resulted in higher demand for heavy equipment. Jammaludin explained that the construction projects that have been kicked off in the past six months or so are using older heavy equipment units as local heavy equipment retailers are now renting out these older units to the developers of such projects.
At the start of the year, Hinabi targeted to see sales of heavy equipment in Indonesia touching 4,000 units in full-year 2016. However, with the sales figure of 1,471 units in H1-2016, this target will most likely not be achieved and hence is in need of a revision (most likely to the range of 3,000 - 3,500 units).
Earlier it was reported that some 4,000 Indonesian workers were sacked in the heavy equipment industry in 2015 due to the weak circumstances.
Sara Loebis, Secretary at United Tractors, said the heavy equipment sector has been hit hard by low commodity prices. The impact has been particularly felt since 2015. Among commodities, the coal price has the biggest influence. Indonesia is one of the global leaders in terms of coal production and export. With coal prices plunging significantly after 2011, coal miners have been winding down production rates. In 2015 many Indonesian coal miners in fact stopped production altogether as production costs exceeded income from sales. Loebis added that rising heavy equipment sales for the country's construction projects cannot compensate for the decline in sales for the mining sector.
United Tractors, a unit of Astra International, is the largest distributor of heavy equipment in Indonesia.
However, next year heavy equipment sales may stabilize as commodity prices are expected to rise. Recently, the World Bank predicted that the crude oil price will rise in 2017 to an average of USD $53.2 per barrel. This year, the Washington-based lender sees the oil price declining by 15 percent (y/y) to USD $43 a barrel from the realization of USD $50.8 per barrel last year.
Meanwhile, the coal price made a sharp recovery in July and August 2016 (surging more than 10 percent) due to stronger demand from China. However, it is uncertain whether it can sustain this rise in the remainder of the year as well as in 2017.
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