Displaying items by tag: Indonesia
Update on Indonesia, July 2023
19 July 2023The government in Indonesia made building new cement capacity harder this week. The new rules are intended to strengthen the local sector in the face of a utilisation rate of only 53%. A moratorium policy and/or new investment arrangements have been placed on new cement plant projects. Instead, companies have been asked to focus on the regions of Papua, West Papua, Maluku and North Maluku instead, where demand for cement is higher than what the local production base can produce. Ignatius Warsito, the Director General of the Chemical, Pharmaceutical and Textile Industry at the Ministry of Industry, said that the new rules would be reconsidered once the capacity utilisation rate reaches 85%.
Other measures the government is also looking at include increasing exports of cement, changing regulations related to the coal Public Service Agency (BLU) and improving overland transport. On that last point the authorities and the cement producers are looking at how logistics costs can avoid rising in the face of the impending Zero Over Dimension Over Load (ODOL) policy. Proposals the sector has submitted include implementing a multi-axle policy for trucks and improving the quality of certain roads to allow for higher capacity vehicles.
As one of the government’s focus areas - coal - suggests, fuel prices have been a headache for the cement sector in recent years. Warsito noted that international coal prices started to rise in late 2020. This was likely due to the logistical mess that the coronavirus pandemic caused to the global economy. Higher coal prices caused a “significant” effect on the cement industry through both higher production costs and restrictions on supplies. One irony to note here is that Indonesia is one of the world’s leading coal producers. Donny Arsal, the head of Semen Indonesia, told the government in 2022 that the war in Ukraine had enticed local coal companies to export more coal due to the rising international price. At this time he lobbied the administration to use its local domestic market obligation (DMO) subsidy to better serve the cement sector by giving it more coal at a fixed price.
Graph 1: Cement demand and capacity in Indonesia. Source: Semen Indonesia and Indonesia Cement Association.
Overcapacity has been a recurring feature of the Indonesian cement market since at least the 1990s as the demand and capacity have grown sometimes out of step. The capacity utilisation rate reached 90% in the early 1990s only to fall to 50% by the end of that decade due to the Asian financial crisis. More recently Holcim left the market in 2019 when it sold its business to the Semen Indonesia. The state-owned company consolidated more than half of the country’s cement production capacity at the time. According to its data for the first quarter of 2023 it has a 51% market share and a 46% production capacity share. It also said that 92% of local demand was catered for from four of the country’s 14 producers, namely: Semen Indonesia; Indocement; Conch; and Merah Putih.
A recent study by the Jakarta Post newspaper suggested that after a poor first half in 2023, cement demand was expected to rebound and create modest overall annual growth by the end of the year. The key reasons for this outlook are increased government infrastructure spending, ongoing work on the new capital city Nusantara and anticipated price stability. The new city project, for example, is expected to require 1.6Mt of cement in the 2022 - 2024 period. Risk factors, of course, abound such as a global economic slowdown, financial problems at some of the government-owned construction companies like Waskita Karya and new capacity. A new 8Mt/yr (!) plant owned by local company Kobexindo and China-based Honshi Cement, for instance, is scheduled to start operation in the second half of 2023 in East Kalimantan. Even though the government says that the new unit will export 90% of its production, it will place pressure on other existing sites hoping to increase exports.
The country’s largest cement producer being majority owned by the government is a pertinent feature here given that the same government has also effectively banned new capacity. Semen Indonesia’s earnings before interest, taxation, depreciation and amortisation (EBITDA) have fallen each year consecutively since 2020. As mentioned above overcapacity has long been present in the local sector and recent events have made it worse. Yet, the companies that are likely to benefit the most from a block on newer, competitive cement plants are likely to be the established players. That said, though, with the utilisation just above 50% and new projects like the Kobexindo-Honshi plant on the way, the government likely feels it has to take some form of action. Other tools at its disposal include a national carbon exchange set to launch in September 2023. Power companies will participate from the start with cement producers anticipated to follow at a later stage. Despite the uncertain short-to-medium term outlook the cement sector in Indonesia remains one of the largest in the world with plenty of business to be done. Denmark-based FLSmidth was clearly mindful of this when it opened a new office in Jakarta in April 2023.
Indonesia: The Indonesian cement industry produced 29.3Mt of cement during the first half of 2023. This corresponds to a utilisation rate of 51% across an installed national capacity of 116Mt/yr. Throughout 2022, the industry produced 64Mt of cement and recorded a utilisation rate of 55%. Local capacity utilisation levels in the first half of 2023 were as low as 45% in some regions. Only Bali-Nusa Tenggara Region and Maluku-Papua Region did not suffer from overcapacity. National demand was 28Mt in the first half of 2023 and 63Mt throughout 2022. Meanwhile, first-half exports rose by 12% year-on-year in opening six months of 2023.
Indonesia Government News has reported that the Ministry of Industry has instigated a moratorium on investments in the construction of new cement capacity. Director general Ignatius Warsito said "These efforts can provide legal certainty for cement industry players in the country, as well as support competitiveness." Warsito noted the health of Indonesia's existing export markets for cement, but noted the uncertainty of the industry's coal supply and its price. Coal currently accounts for 40% of Indonesian cement's fuel consumption by value.
Indonesia: Semen Tonasa has appointed Asruddin Leo as its president director following a shareholders meeting. He succeeds Mufti Arimurti in the post, who resigned in May 2023, according to Rakyat Sulsel.
Asruddin has worked for Semen Indonesia and its subsidiaries, including Semen Tonasa, since 2011. He previously worked in finance roles at Semen Tonasa, before becoming the Head of Finance and then the chief executive officer at Thang Long Cement in Vietnam. He has also worked as the vice president for Financial Policy and Excellence at Semen Indonesia. He holds an undergraduate degree in accounting and a master’s degree in strategic management from the Hasanuddin University in Makassar, South Sulawesi.
Indocement Tunggal Prakarsa and Amita Holdings launch feasibility study towards net zero cement production
21 June 2023Indonesia: Indocement Tunggal Prakarsa has engaged Japan-based environmental consultancy Amita Holdings to support a two-year feasibility study to investigate ways to make its cement production carbon neutral. The study will commence with trials of industrial wastes as alternative raw materials and municipal solid waste as refuse-derived fuel. Amita Holdings says that it is in the process of building a recycling-based society in Indonesia, in partnership with Indocement Tunggal Prakarsa.
Amita Holdings supported the establishment of the community-led Meguru waste sorting facility in Central Java. Two of Indocement Tunggal Prakarsa’s cement plants – the 18Mt/yr Citeureup cement plant and 4.1Mt/yr Paliman cement plant – are situated in neighbouring West Java.
Indonesia: Norway-based Norges Bank has placed Semen Tonasa under observation for risk of damage to art in Leang Leang Maros Prehistoric Park in South Sulawesi. Reuters has reported that the cement producer has no monitoring system in place for its limestone mining operations near to the designated UNESCO Global Geopark. Vibrations and dust reportedly present a danger to the 44,000yr-old works of art at the site. Norges Bank holds a 1.6% stake in Semen Tonasa's parent company Semen Indonesia.
Norges Bank said "The background for the decision is the unacceptable risk of damage to prehistoric and irreplaceable culture heritage."
Indonesia: Semen Indonesia subsidiary Semen Baturaja has obtained four loans worth a total US$59.9m. Bank Negara Indonesia, Bank Mandiri, Bank CIMB Niaga and HSBC Indonesia advanced the funds. The loans' syndicated credit agreement aligns with Semen Baturaja's sustainability strategy, which is based on Semen Indonesia's Sustainability Framework.
Semen Baturaja's managing director Daconi Khotob said "This syndicated sustainability-linked loan will provide many benefits for Semen Baturaja, including lower interest rates than conventional loans, more attractive term sheets and the flexibility to make accelerated repayments." Khotob added that the sustainability provisions will also 'broaden the scope of investors.'
Coal supply resumes to Hetauda Cement Udyog's Hetauda cement plant
24 February 2023Nepal: Hetauda Cement Udyog has resumed operations at its Hetauda cement plant after receiving a 1600t delivery of imported coal. República News has reported that importers sourced the coal from Bhutan, India, Indonesia and Pakistan. The Hetauda cement plant had been out of operation since 10 February 2023 due to a lack of coal. The producer said that the latest delivery will last it until 11 March 2023. The producer had ordered 8000t of coal.
Switzerland: A civil legal case against Holcim made by four residents of the Indonesian island of Pari has filed a formal complaint against the cement producer on behalf of the entire island at the Cantonal Court of Zug. The civil case was started in July 2022 in response to climate change-induced flooding of the island, according to Reuters. Informal negotiations followed in October 2022 but this failed, according to a representative of Swiss Church Aid. Environmental organisation Walhi claims that this latest action is first formal civil proceeding in Switzerland against a company for its contribution to climate change
Walhi says that the plantiffs are demanding ‘proportional compensation.’ The European Center for Constitutional and Human Rights (ECCHR) is also supporting the islanders. A spokesperson for Holcim said that climate change was a "top priority for Holcim at the heart of our strategy".
Solusi Bangun Indonesia orders two silos from Claudius Peters
18 January 2023Indonesia: Solusi Bangun Indonesia (SBI) has ordered two EC22 cement silos from Germany-based Claudius Peters. The silos have a volume of approx. 17,200m3 and will be installed by contractor PT Hutama Karaya (Persero). The scope of supply includes all process equipment for the silos from conveyors to filters.
SBI is a subsidiary of Semen Indonesia Group. It is expanding the export capacity of its integrated cement plant at Tuban by building a new terminal. The group has a cement production capacity of 65Mt/yr.
Indonesia: State-owned Semen Indonesia has expanded its stake in subsidiary Solusi Bangun Indonesia to 84%. The group acquired the new Solusi Bangun Indonesia shares from another cement subsidiary, Semen Indonesia Industri Bangunan.
Solusi Bangun Indonesia’s four cement plants in Java and Aceh command 14.8Mt/yr-worth of production capacity and employ 2400 people.