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Cement Industry of Indonesia: Sharp Growth of Cement Exports

Monday, August 29, 2016 > 08:44:51
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(Indonesia Investments)

Indonesia's cement exports are targeted to reach 1.5 million tons in 2016, up 50 percent (y/y) from the realization of approximately 1 million tons in the preceding year. Up to the end of July 2016 Indonesian cement exports had already risen by 63 percent (y/y) this year. Although coming from a low base, rapidly increasing cement exports are highly welcome to offset the nation's rising cement oversupply. Due to the arrival of new cement producers and production expansion of existing cement players, while domestic cement consumption remains bleak, there occurred a big oversupply.

Based on data from the Indonesia Cement Association (ASI), Indonesia exported 833,000 tons of cement in the first seven months of 2016, up 63.5 percent (y/y) from the same period one year earlier. About 509,000 tons of the total was in the form of clinkers, while the remainder constituted raw cement.

This year, six new cement factories were opened in Indonesia with a total combined annual production capacity of 14 million tons. As such, the country's total installed cement production capacity has now reached about 92 million tons. However, with domestic cement demand in Indonesia expected to remain bleak at around 65 million in 2016, Indonesia thus has to deal with a major oversupply. Widodo Santoso, General Chairman of ASI, says several Indonesian cement producers have in fact already ceased production as their warehouses have become saturated.

Besides Indonesia, other countries are also plagued by a cement oversupply and therefore form big competitors of Indonesia in terms of cement exports. These countries are Vietnam, Thailand, Japan, South Korea, and China. Indonesia's is East Asia's largest cement producer with an installed production capacity of 92 million tons of cement per year, followed by Vietnam (78 million tons), Japan (60 million tons), and South Korea (55 million tons).

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)


ASI Chairman Santoso is supportive of Indonesian cement producers' request (to the government) to issue a moratorium on new permits for the construction of new cement plants in Indonesia. This moratorium should be put in place until at least 2019 as existing cement producers fear further falling profit due to the structural cement oversupply within the country. Falling profit means that cement producers will have difficulty to pay off loans from banks that were obtained to build the cement plants. Santoso added that in Thailand and Vietnam authorities have implemented such a moratorium to combat the oversupply of cement.

Although Indonesia's (government-led) infrastructure development is well on its way, it is yet to boost domestic cement sales significantly. Meanwhile, Indonesia's property sector has remained bleak so far this year. However, in the central government's 13th economic policy package, released earlier this week, the government focuses on the reduction of bureaucracy in a bid to boost the construction of low-cost housing for the poorer segments of Indonesian society. This could boost property development in the remainder of the year (and beyond).


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