Indonesia: minister to bring in regulation to stop capex expansion

Indonesia: minister to bring in regulation to stop capex expansion
Published: 10 October 2016

Tagged Under: PT Semen Indonesia Indonesia 

In an effort to curb Indonesia’s burgeoning overcapacity, the government has announced that it is working on a regulation banning the issuance of new permits for cement plants, the Jakarta Post reports.
“We’ve been talking about the moratorium as well as some other ways to accommodate existing oversupply”, Industry Minister Airlangga Hartarto said. Other sources in government say that the regulation should be issued some time this year.

The country saw a slight increase in nationwide cement sales of 1.6 per cent to 61Mt last year, way below the industry’s zenith in 2012 when sales had grown 14.5 per cent, data from the Indonesian Cement Association (ASI) shows.

Capacity in Indonesia has climbed rapidly in recent years, rising from around 60Mta in 2012 to over 90Mta this year. Further projects in development will lift this total past the 100Mta mark in the next few years. Set against this, Indonesian cement demand has grown more slowly, reaching around 65Mt in 2016.

"This really concerns industry players as sales continue to decrease every year," Indonesian Cement Association (ASI) Chairman, Widodo Santoso, said. ASI supports the moratorium and Mr Santoso welcomed the move, adding that the ban could be relaxed if demand warrants it.

As a result of the overcapacity, major players, such as state-run Semen Indonesia (SI) and privately-owned Indocement Tunggal Prakarsa, have inevitably seen their sales performance slow. “In times of oversupply, firms compete to offer the lowest price. This is not healthy because the bigger producers can eat the smaller ones”, said Agung Wiharto, corporate secretary of Semen Indonesia.

To manage excessive production, firms such as SI have been trying to increase exports to the Maldives, Taiwan and Timor Leste as well as increase the local production of precast concrete, which uses cement as raw material.

SI, however, reported that its export proportion only stood at between 2-3 per cent from overall sales, as domestic demand for cement is still vast, only with tighter competition.