Indonesia's Cement Sales Continue to Slow amid Weaker Property Sector

Domestic sales of Semen Indonesia in the first three quarters of 2013 grew 14.3 percent to 18.2 million tons compared to the same period last year (16 million tons). Therefore, the company's cement sales, by far, outpace the average growth of cement sales in Indonesia (5.3 percent), resulting in an intensification of its market share domination in the country. Indonesia's largest cement producer now dominates 43.8 percent of domestic cement sales from 40.4 percent previously. Its main rivals, Indocement Tunggal Prakarsa and Holcim Indonesia, hold a 30.5 percent and 14.5 percent market share respectively (both are down from 32.3 percent and 15.7 percent last year).

	2012  January-September	2013  January-September	Growth
Domestic Cement Sales   in million tons	39.5	41.6	+5.3%
Domestic Sales + Export in million tons	39.6	42.0	+6.1%

^{Source: Indonesian Cement Association}

However, growth of cement sales is showing a slowing trend in Indonesia. During the first six months of 2013, cement sales grew 7.5 percent year-on-year. Then, in the first seven months, it fell to 5.7 percent (yoy). Most recently, January-September 2013, cement sales fell again, albeit slightly, to 5.3 percent (yoy). It is believed that lower demand in the country's property sector has led to slowing growth of cement sales. Recently, the central bank of Indonesia (Bank Indonesia) introduced a number of measures to curtail credit growth in the nation's property sector as the institution has been concerned about the emergence of a property bubble. Moreover, the bank has raised its benchmark interest rate (BI rate) to 7.25 percent in September, thus making borrowing more expensive. The BI rate has been raised gradually in recent months in order to curtail high inflation after the government increased prices of subsidized fuels in late-June. High inflation reduces people's purchasing power and thus also impacts on the property sector. A slowdown in the country's property sector has a significant influence on cement sales as the property sector accounts for about 70 percent of total cement consumption. The remainder being absorbed mostly by infrastructure projects.

Cement sales in Java (23.31 million tons during January-September 2013) continue to dominate the national market, making up 56 percent of total domestic sales. Java is the country's most populous island and the center of the country's economy and politics. Sumatra accounts for 21 percent of total domestic sales. As such, Java and Sumatra continue to dominate the country's property and infrastructure development, although some outer islands, Kalimantan and the Nusa Tenggara region, recorded higher than average national growth (5.3 percent) in cement sales. Cement sales in Sumatra in the first three quarters of 2013, on the other hand, grew far below the national average (at 1 percent).

The outlook for total cement sales in 2013 has been revised down from 61 million tons to 58 million tons due to the current macroeconomic context, which involves higher interest rates, high inflation and a depreciating rupiah exchange rate.

Total Cement Production and Consumption of Indonesia:

	2010	2011	2012
Cement Production    in million tons	37.8	52.0	60.6
Cement Consumption in million tons	40.8	48.0	55.0

^{¹ indicates a forecast
Source: Indonesian Cement Association}

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