Indonesia’s second-largest cement maker, PT Indocement Tunggal Prakarsa Tbk , said it expects better operating results this year, though rising interest and mortgage rates could dent housing demand.
"Operating results would be better than last year for the reason that we are going to sell more," President Director Daniel Lavalle said in an interview, adding the company planned to raise prices to compensate for higher production costs. He declined to give a specific profit forecast.
A government move to increase domestic fuel prices by nearly a third in March pushed up consumer prices, prompting the central bank to raise benchmark interest rates to a 15-month high.
Lavalle said the prospect of higher mortgage rates would weigh on the company’s main market – more than 80 pe rcent of its product is bagged cement, bought mainly by home builders, though analysts say government plans for multi-billion dollar infrastructure projects may increase demand.
"An increase in mortgage rates...may reduce demand because the biggest element of construction is the financing, not the cement price," the Belgian CEO said.
The price hikes have also pushed up transport costs, adding to rising coal and electricity prices, he said. But idle capacity at Indocement, controlled by HeidelbergCement, would allow it to respond if cement demand rises more than a forecast eight per cent this year, he said.
According to ABN Amro, Indocement’s bigger rival PT Semen Gresik Tbk has hit production capacity in Java, which would give Indocement the chance to squeeze extra market share.