Domestic cement consumption in Indonesia could grow by less than eight per cent this year in the wake of the government’s move to increase fuel prices last March, a senior company executive said.
That would be slower than the up to 10 per cent some analysts and industry executives have estimated on the back of rising demand for infrastructure and housing in Indonesia, Southeast Asia’s largest economy.
"The government’s decision to take out the fuel subsidy has been directly affecting the cement industry. This is a major blow for us," said Christian Kartawijaya, finance director at PT Indocement Tunggal Prakarsa Tbk , the country’s second-largest cement producer.
"Domestic consumption grew by around eight per cent in the first half. This will not happen in the second semester, therefore we predict full-year (consumption growth) will be less than eight percent."
Industry has felt the effect of the average 29 per cent fuel price hike last March, implemented to reduce costly fuel subsidies that burden the budget. The hike has fed into higher transportation costs for nearly all aspects of the construction industry, from running cement trucks to urban development.
Data from a cement industry association showed domestic consumption had expanded by nine percent YoY in the first half of 2005.
The fuel price hike pushed Indocement’s variable costs up by 30 per cent in the first half and is expected to increase it by 12 percent in the second semester, said Kartawijaya.
Kartawijaya said the company was studying the possibility of increasing cement prices in the second half.
Indocement’s sales revenue far outpaced national consumption, rising nearly 25 percent YoY in the first six months. The company booked IDR307.6bn ($31.55m) in net profit during the period, from a 117.3bn loss in the same period last year. Indocement’s market share had increased to 34 percent by the end of the first half, from around 29 percent a year ago, Kartawijaya said.