Indonesia: market growth prompts more expansion

Indonesia: market growth prompts more expansion
Published: 17 December 2010

A strong economy and the government’s push to develop infrastructure is driving Indonesia’s domestic cement demand significantly, with sales in 2010 expected to grow 6% to 40.6Mt, up from 38.4Mt in 2009. Aside from a realisation in infrastructure projects, other factors positively influencing consumption include a residential housing boom and greater government spending. Sales in Java represent the largest market share of 53% or 19.8Mt in 2010, of which 82% was sold in bags and the rest in bulk.

With local manufacturers producing just 39.5Mt and imports creeping up to 1.5Mt this year, renewed impetus on new capacity is now paramount, especially as demand is expected to climb 8% annually up to 2015.

PT Holcim Indonesia, the second largest producer in Indonesia and which already operates two plants in Central and West Java totalling some 6.4Mta of clinker capacity, has just launched plans to build its third plant in Tuban, East Java. This US$450m project will bolster the company’s clinker capacity by 1.5Mta, pushing its total cement availability to almost 10Mt by 2013 when the new plant is expected to come on-stream.

The country’s leading producer PT Semen Gresik, with a 45% market share, is planning to issue up to US$300m in bonds in the first half of next year to fund acquisitions and intends to increase its capacity by 25% to 22Mta starting next year.

Gresik has already earmarked almost US$500m in 2011 to finance expansion, after allocating US$400m for capital expenditure this year, according to company data, spending some of the funds to upgrade facilities and build new plants in East Java and South Sulawesi. These new factories will raise the company’s capacity by 5Mta, with the new 2.5Mta Sulawesi plant expected to be operational next year and the 2.5Mta East Java plant in 2012.

Other producers scheduled to realise their investments this year include PT Semen Andalas Indonesia which was devastated by the December 2004 tsunami and has rebuilt its 1.6Mta facility. Moreover, a local company in Jember, East Java, namely PT Semen Puger Raya Sentosa, also plans to operate a new 300,000tpa grinding plant.

Data by the Indonesia Cement Association (ASI) and the Ministry of Industry showed that the national cement production capacity this year reached 52.62Mta, rising 12% from 46.94Mt YoY. Clinker capacity is currently measured at 43.25Mta up from 40.9Mta last year. Indonesia’s largest player in terms of production capacity is Indocement, owned by HeidelbergCement, which operates two plants in Java and one plant in Kalimantan, giving it a massive 15.6Mta of clinker capacity.

If all current and projected plans reach fruition, national cement production capacity would reach 70.22Mta by 2015, while domestic consumption is predicted to reach 65Mt by 2015.

Meanwhile, Semen Gresik is also making waves in the local press that it is planning to purchase a cement company in Southeast Asia next year as part of a diversification and expansion strategy. Dwi Soetjipto, Semen Gresik’s president director, said this week that the company was looking at possible buys in Malaysia or Vietnam. “The most likely one is in Malaysia. We’re still negotiating, so I can’t disclose the names yet, but we’re expecting to complete the acquisition next year,” he said.