Indonesia: changing perspectives
Following high capacity utilisation rates and the prospect of market growth going forward, the decade running up to 2015 looked promising for Indonesian cement producers. However, as capacity expansions were implemented, economic growth faltered and cement demand slowed in 2015-16. Forecasts for 2017 are somewhat more optimistic, but the past few years have required domestic cement producers to change their perspective. By Sinarmas Sekuritas, Indonesia.
In 2015 the cement business environment changed significantly in Indonesia. Low cement demand due to slowing economic growth, coupled with the completion of new cement plants by both new and old players saw the country entering an era of excess production capacity, instigating fierce competition in the domestic cement market. Due to weak purchasing power, the property business, which contributes more than 75 per cent to total domestic cement demand, experienced only modest growth, reducing cement demand in the Indonesian market.
The changing business environment has appeared to have somewhat caught Indonesia’s cement producers by surprise. Between 2006-14, before excess production capacity affected Indonesian cement producers, capacity utilisation rates reached 70-90 per cent. As growth was forecast at around five per cent annually at the time, the cement supply-balance was expected to become tight in 2018. Anticipating supply shortage, producers started building several new cement plants.