Government of Indonesia Eager to Limit Investment in Cement Industry
The Indonesian government wants to limit investment opportunities in the country’s cement industry in an attempt to maintain a healthy business climate. Indonesian Industry Ministry official Harjanto said that Indonesia’s current cement production capacity is more than enough to meet domestic demand. Given that most established cement producers have expansion plans the influx of new cement producers leads to an oversupply thus reducing companies’ profit margins. The nation’s cement production capacity stands at 77 million tons per year.
Harjanto said that the Industry Ministry is concerned that due to China’s slowing economic growth, low technology cement firms will relocate from to Indonesia, Southeast Asia’s largest economy. Chinese cement manufacturers have already expressed plans to move to East Java. As low technology cement production is less energy efficient in the production phase it thus leads to inefficient energy consumption and as Indonesia already has difficulty to supply energy to its peoples and businesses the government would prefer not to see this influx.
Although the total cement production capacity of Indonesia is an annual 77 million tons, the domestic market only absorbed 60 million tons of cement in 2014. Cement sales in Indonesia only grew slightly from the preceding year due to the uncertainties that were caused by Indonesia’s ‘political year’ (the legislative and presidential elections), the central bank’s higher interest rate environment (currently the BI rate is 7.75 percent), low commodity prices and weakening purchasing power. This all led to the postponement of various infrastructure projects as well as other investments in Indonesia.
Similar to car sales, cement consumption is an important indicator that goes in tandem with a country’s general economic performance. It is therefore no surprise that slowing cement sales growth in 2014 is accompanied by slowing economic growth (Indonesia’s GDP growth slowed to 5.02 percent in 2014). As economic growth is estimated to accelerate in 2015, cement sales are expected to grow accordingly. The administration of President Joko Widodo is keen to enhance infrastructure development, such as the Trans Sumatra, Medan-Kuala Namu, and Manado-Bitung toll roads, as well as a series of new (or renovated) seaports across the archipelago.
Indonesian Cement Sales 2008-2014:
| Year | Cement Sales |
YoY Growth |
| 2014 | 60 million | +3.4% |
| 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: Indonesian Cement Association (ASI)