Cement makers hurt by weak demand

Cement makers hurt by weak demand
Published: 25 February 2004

Indonesia’s cement industry is expected to remain in the doldrums this year due to various factors such as weak sales growth, excess production capacity, and the rising cost of energy - says the Jakarta Post in a recent report.

Chairman of the Indonesian Cement Producers Association (ASI) Soepardjo said that sales volume would likely grow by only three per cent this year, mostly driven by governmental infrastructure projects.  "We cannot expect higher growth because consumers’ purchasing power remains low," Soepardjo told lawmakers during a hearing with the House of Representatives Commission V for industry and trade on Tuesday.

The growing number of construction projects, such as apartment blocks and shop/houses in several big cities were also expected to slightly lift the growth, he said.  Domestic cement sales grew by only one per cent last year to 27.5Mt from 27.2Mt in 2002.

President of state-owned cement producer PT Semen Gresik (SG) Satrio concurred.  He said the slow growth was attributable to the slow pace of recovery in the property sector, as well as slow progress in governmental development projects.

He explained that with the current installed production capacity, the ideal sales growth should be around 8-10 percent, or twice the country’s economic growth rate, in order for the industry to be feasible.

According to ASI, the industry has only utilised 63 per cent of its installed production capacity, down from 65.5 per cent in 2001, meaning that the industry is burdened with the extra cost of maintaining idle machines.  Soepardjo said the industry was currently reluctant to boost export because of the recent hike in shipping costs, which soared by more than 40 per cent.  During the hearing, the association also delivered its concerns over the shortfall in domestic coal supply, as local coal producers preferred to export their coal rather than sell it at home because of the higher price abroad.

The association said that limited supply had caused the price of coal to increase, thus burdening the production costs of cement companies. Coal accounts for 20 per cent of total production costs.  Chief financial officer of the country’s second-largest cement producer PT Indocement Tunggal Prakarsa Thomas Kern said that the increase in the price of coal would have a negative impact on the industry as this reduced its profitability.  However, Kern said that Indocement would not be immediately hit by the increase because it had signed a long-term supply contract with several coal producers.