Indonesia, Malaysia and Vietnam are large and diverse nations located in south east Asia, a region of the world that continues to undergo rapid economic development despite the 'global' economic downturn. With many of their major towns and cities developing heavily in recent decades, attention is now shifting to other areas. Indonesia is looking to develop its eastern region of Papua and Malaysia is turning its attention to the development of Malaysian Borneo. Less developed Vietnam also has massive development potential.
Like the nations themselves, the cement industries of Indonesia, Malaysia and Vietnam are changing and developing rapidly, with expansions, projects and proposals announced frequently.
The Republic of Indonesia is the world's largest archipelagic state, stretching for over 5200km east to west between the Indian and Pacific Oceans. The country consists of approximately 16,700 islands, of which only around a third are inhabited. Its total area is 1.9 million km2, making it the third largest country in Asia after China and India.
Indonesia is also the third most populous country in Asia, with a population of 237 million recorded in its 2010 census. It has the fourth highest population in the world after China, India and the USA and is home to more Muslims than any other country.
|GDP (2011 est.)||US$707bn|
|Population (2010 census)||237m|
|Integrated cement plants||12|
|Average plant capacity||4.16Mt/yr|
Above: Summary data for Indonesia and its cement industry.
Source: GDP from World Bank Indicators; Population and area from CIA World Factbook; Cement data from Global Cement Directory 2012.
The archipelago that now forms Indonesia was colonised by the Portuguese and the Dutch from the 1600s. The Dutch dominated for 300 years and although an Indonesian independence movement was mounting by the start of the 20th century, it took invasion by Japan (1942-1945) during the Second World War for Indonesia to be able to claim independence.
Following liberation from Japan in 1945, the colony declared independence from the Netherlands, which formally recognised Indonesia as a separate state in 1949. This only happened after a four year war on the island of Java and mounting international pressure.
From 1949 to 1967 Indonesia was dominated by the formerly-imprisoned independence activist Sukarno. His rule was punctuated violently in 1965 by a failed communist coup in which the government carried out a clampdown and half a million people were killed.
In 1968 Sukarno was removed from power by a former army general, Soeharto. He improved Indonesia's international reputation, easing hostilities towards neighbouring Malaysia and bringing in Western development. He also saw Indonesia re-instated into the UN and encouraged development of the oil industry. From 1968 to his resignation in 1998 Soeharto oversaw a significant improvement in Indonesia's economic position.
Following the economic improvements seen under Sukarno, the Asian banking crisis of the late 1990s affected Indonesia very badly. Indeed it was the most damaged economically of all of the 'Tiger' economies.
Indonesia's currency, the Rupiah, lost approximately 80% of its value against the US Dollar in 1997. President Sukarno resigned in 1998 due to his perceived poor performance during the crisis.
Since 2000 the economy has resumed growth, with a new wave of local and international development. The country's GDP/capita has shot up once again, increasing by a factor of six in little more than a decade. The rate has increased from just US$459/capita in 1998 to nearly US$3000/capita in 2010 and 2011.
The US$707bn Indonesian economy has now expanded by more than 6% for five straight quarters, outperforming other nations in the region. Growth looks set to continue, with President Susilo Bambang Yudhoyono announcing a 19% increase in infrastructure spending to US$18bn for 2012. The main targets are the improvement of railways, airports and roads. This will be greatly facilitated by the December 2011 passing of a long-awaited land-acquisition bill that will help projects progress more quickly.
Indeed the long-term forecast for Indonesia from Wilianto Ie, Nomura's head of equity research for Indonesia, is very positive. "Once the rush into China and India has stabilised, Indonesia will start to stand out," he said. "Our economy is relatively closed and exports are not a key driver. That's one of the reasons why the global economic situation will have a limited impact on us. Commodity prices and inflation are relatively subdued and purchasing power remains relatively high."
Cement - Introduction
The increasing emphasis on Indonesia's development, especially in areas away from Jakarta and the main island of Java, has led to increased demand for cement since the Asian banking crisis. The map and list of plants below shows that although the country already has a dozen dry process integrated plants, there are two plants currently under construction. Another four have recently been proposed. Numerous other grinding and packing plants have also been announced and are described elsewhere in this review.
Despite many of the new proposals being located outside of Java, the most developed island, Java still accounted for 55% of cement demand in the country in 2011. At the moment the island produces 65% of Indonesia's cement, which has to be shipped elsewhere, either overseas or to more eastern regions of Indonesia.
This drive to the east was summarised in February 2012 by Dwi Sutjipto, CEO of Semen Gresik, who said that he wanted the company to 'dominate' the cement market in the east in the coming years.
Above: Map of Indonesia showing names of major islands, cities, neighbouring countries and areas of water and integrated cement plants.
(click on image to open PDF version with full key and list of plants)
Cement - Major players
PT Semen Gresik: The largest Indonesian cement producer by capacity, PT Semen Gresik is a state-owned company, which traces its roots back to Gresik, east Java in 1957. Starting with just one 0.25Mt/yr wet-process kiln, the company has grown massively over the past 50 years, expanding the original site and opening plants at Tonasa, Tuban and Indarung through its subsidiaries.
The group has added capacity at Tonasa through its subsidiary PT Semen Tonasa, which operates three plants at a single site. In 2012, the Tonasa site will be expanded to accommodate a fourth plant, bringing an additional 2.5Mt/yr online. Semen Gresik has a second cement-producing subsidiary, PT Semen Padang, which operates a 5.24Mt/yr plant at Indarung in north Sumatra.
In 2010 Semen Gresik's combined cement production was around 17Mt/yr, but the group says that it is on target to produce over 25Mt in 2012 and that it will ramp production up to 30Mt/yr in 2015.
Financially, in the short- to medium-term the health of the group appears assured. In 2012 PT Semen Gresik's finance director Ahyanizzaman expects the group to increase its revenue by 10-12% due to a raft of new packing plants (see separate story below) and the commissioning of additional integrated capacity at Tonasa.
The company forecasts a more moderate increase in its net profit due to its capital expenditure. "We estimate a growth of 1-2% in net profit in 2012 compared to 2011," said Ahyanizzaman. "The slight increase is due to the new factories producing below their full capacity."
Indocement (HeidelbergCement): Indocement was established in 1975, but since 2001 it has been majority-owned by Germany's HeidelbergCement. Today the company has three integrated cement plants with a total production capacity of 18.5Mt/yr.
Indocement's most significant installation is the 11.3Mt/yr integrated mega-plant at Citeureup, which has an incredible nine dry kilns. It is complemented by two 2.6Mt/yr plants at Tarjun and Cirebon.
As well as the integrated facilities, the company operates grinding and packaging plants. Of all of the plants, nine are located in Citeureup, Bogor, West Java, two are in Palimanan, Cirebon, West Java and one is in Tarjun, Kotabaru, South Kalimantan.
Having marketed cement under the 'Tiga Roda' brand since it started production, Indocement now offers OPC, CEM II, CEM III, oil-well cement and Portland composite cement.
In 2005 Indocement differentiated itself from its local competition by becoming Indonesia's only producer of white cement. The launch was successful and the supply of white cement now accounts for the majority of its cement sales.
In 2010 Indocement installed new batching plants for its bulk cement and ready-mix concrete activities so that it could expand its market share away from its traditional Java base. Indocement also has minor aggregate activities.
For 2011 Indocement has announced that its cement sales rose to 16Mt, a 15% increase over 2010. The company said that demand for construction, mainly for property, had jumped throughout the year.
Holcim Indonesia: Holcim Indonesia was founded as PT Semen Cibinong in 1971. It was renamed after being taken over by the Swiss cement giant Holcim in 2006 and now operates two integrated cement plants. These are located at Narogong and Cilacap, both of which are in Java. It also has a cement grinding station at Ciwandan, Banten. A third integrated plant is scheduled to begin operations in 2013 at Tuban in east Java. The company's cement production capacity is currently 8.3Mt/yr although the Tuban plant will see this increase to 10Mt/yr in 2013.
In its 2011 results, which were released on 8 March 2012, the company demonstrated record growth in sales, with a 26% improvement seen over 2010. Its sales revenues were up by 28% to US$825m and earnings were up to US$116.9m. The company improved its domestic market share to 15.5%. It sold 8.2Mt of cement in the whole year.
Commenting on the performance, director Eamon Ginley said, "The investments we have made in our supply chain, in adding over 100 new franchise outlets including a third franchised ready-mixed concrete plant, among other measures, have helped us outperform the market in a year of robust demand and tight supply conditions."
Not everything has been going Holcim Indonesia's way however, with the company recently announcing that its troubled subsidiary PT Semen Dwima Agung will be incorporated into its parent company. The company said that the move would help it to reduce production costs.
According to its financial report, as of December 2011 Semen Dwima Agung held US$9.15m in assets, with liabilities of US$10.6m. The company suffered a net loss of US$1.16m in 2011, a significant setback.
The company holds licenses to quarry, produce cement and mine clay. It owns production facilities and a site in Tuban, East Java but is yet to actually produce any cement.
Now that the Tuban land is being used for Holcim Indonesia's third integrated plant, it is believed that PT Semen Dwima Agung will switch to investigating and acquiring land for future Holcim Indonesia projects rather than production.
"The directors and commissioners consider that mining activities and operational activities of the (Tuban) cement factory should be carried out by one entity. By incorporating mining and operational activities at the new plant, Holcim Indonesia will be able to avoid inter-company transactions leading to unnecessary administrative work and taxes, which in turn raise production costs," said Holcim Indonesia in an explanation of its decision.
Above: Map of Java showing the locations of major Holcim Indonesia plants and distribution centres.
Cement - Other players
As well as Semen Gresik, Indocement and Holcim Indonesia, there are also integrated cement plants operated by Semen Kupang, Semen Bosowa Maros, Semen Baturaja and Semen Andalas Indonesia (SAI). Between them, these plants have approximately 5.25Mt/yr of cement production capacity.
SAI, a Lafarge subsidiary, is located in north east Sumatra. The original plant was destroyed in the 26 December 2004 tsunami disaster that hit Indonesia and other countries in south east Asia.
A new 1.6Mt/yr kiln was constructed by a Chinese firm. It took five and a half years to recommission the plant, which produced its 'second' first clinker on 30 June 2010.
In addition to these existing players, the market is attracting attention from elsewhere. Recently Chinese firm China Truimph Engineering announced that it would construct a 2.5Mt/yr plant in Papua in the east of Indonesia. In March 2012 the major Chinese cement player Anhui Conch announced two proposals for cement plants in Indonesia with a total capacity of 5Mt/yr. In addition, Lafarge (Indonesia) is launching a plant at Langkat in 2015.
Cement - Production, consumption and sales
In the mid 1990s, Indonesia produced around 25Mt/yr of cement, with 90% of capacity utilised in 1996. In 1997 this rate fell to 82% despite a rise in demand, with capacity racing ahead by 6Mt/yr in just 12 months. The Asian financial crisis hit cement demand during 1997, which showed up in 1998 as a capacity utilisation rate of just 50%. In that year cement capacity reached to over 45Mt/yr, but demand was just a little over 22Mt/yr. It is interesting to note that of the 10 cement plant projects in the pipeline at the start of 1997, only Semen Bosowa Maros was actually implemented.
From 1999 to 2006 Indonesia's cement capacity remained at around 46-47Mt/yr, with actual production at around 30-33Mt/yr. In 2007 production was up by 6% and in 2008 the country's production hit 38Mt. Production was again down in 2009 due to the global economic crisis, although capacity hit 47.9Mt/yr in that year. In 2010 the Indonesian capacity rose to over 50Mt/yr for the first time, hitting 51Mt/yr.
Demand has since recovered to pre-recession levels and in 2011 sales continued to rise, with the market growing by 17% year-on-year compared to 2010, when Indonesia produced 39.5Mt of cement.
"Indonesia had a large physical development during 2011 and the result followed strong economic growth figures. We also saw a huge decline in exports, which means domestic suppliers prioritised the domestic market," said the chairman of the Indonesian Cement Manufacturer's Association, Urip Trimuryono. Total cement exports from Indonesia were down by 59% in 2011 to 1.2Mt. In 2010 they had been as high as 2.9Mt. This is another indicator of increased cement demand in the country in the past 12 months.
Looking even more recently, cement sales grew by nearly 24% year-on-year in February 2012, according to data from Semen Gresik. Sales reached 4.1Mt for the month, slightly higher than the 4.06Mt sold in January 2012, when sales were up 15.2% compared to January 2011. Sales in January and February 2012 were down slightly compared to December 2011, which saw 4.6Mt/yr sold across the country.
|Month||Sales (Mt)||Monthly change (%)||Annual change (%)|
Above: Cement sales in Indonesia by month, with month-on-month and year-on-year percentage changes. While the month-on-month changes fluctuate with the seasons, religious holidays and government infrastructure deadlines, the year-on-year figures show that 2011 and the start of 2012 has seen a strong increase in domestic cement demand.
Cement - Forecast
The strong growth in cement demand that Indonesia saw in 2011 looks set to be repeated in 2012, with various consultancies, producers and associations quoting demand growth of 6-11%.
According to a recent release by Bahana Securities, the Indonesian cement market is on target to produce 53Mt in 2012. Bahana forecasts an 11% increase year-on-year due to stable and low interest rates, steady GDP growth and new projects brought forward under the recently-passed land-acquisition bill. Meanwhile the Indonesian Cement Manufacturer's Association has gone on the record predicting a 6% increase in output. Indocement has said that it expects national demand for cement to increase by 8-10% in 2012.
In the longer term Nusa Prima Persada International Consulting forecast in 2010 that to keep ahead of growing demand without resorting to cement imports, Indonesia would have to commission an additional 10 plants of 2.5Mt/yr each by 2020. No wonder Semen Gresik is looking to 'dominate' production in the less-developed east of Indonesia. Such a market would be a fantastic place to invest, with Anhui Conch already proposing its move.