Displaying items by tag: Indonesia
Take a moment to spy on the Citeureup cement plant in Indonesia. It's gargantuan! The Indocement site is one of the largest cement factories on the world. It has nine production lines with a cement production capacity of 11.9Mt/yr.
The news this week that Indocement intends to stop production at three cement production lines at its Citeureup plant strikes an uncertain tone. The decision underpins the impression of a readjusting Indonesian cement market despite the HeidelbergCement subsidiary saying that the capacity will be replaced by a new 4.4Mt/yr line at the site at the end of 2015. Temporarily reducing production capacity by 35% may not seem much on a industrial site that can produce more cement than many countries! However, a single factory this massive is likely to be particularly vulnerable to market changes.
Zooming out to the national picture, Indocement reported that its revenue dropped by 6.6% year-on-year for the first half of 2015. Domestic sales volumes of cement fell by 8.1% as domestic cement consumption in the country generally fell by 4.2%. The cement producer blamed the falls on economic stagnation and delayed government spending on infrastructure projects.
In its outlook Indocement lamented the loss of subsidies on electricity and fuels in Indonesia. Back in 2014 the government raised electric prices via a tariff under the previous administration before lowering them slightly. Then the new government raised fuel prices in November 2014 by removing subsidies with the intention of siphoning the savings to infrastructure spending. At the time a Semen Indonesia representative told the Jarkata Post that he expected cement sales to rise by 6% in 2015. This estimate had already followed a downward adjustment of predicted sales in 2014 due to familiar sounding delays in infrastructure projects (due to an election year) and a slowing economy.
In addition to this the government also imposed price cuts on cement on state-run producers in January 2015. Semen Indonesia then saw its domestic sales volumes fall by 5.3% in January – May 2015 to 9.91Mt. Subsequently Semen Indonesia saw its net profit drop by 21% year-on-year to US$163m for the first half of 2015. Around a month before its mid-year results it reported to local media that it was concentrating on exports in 2015. Reported exports have risen by over 700% to 0.18Mt in January – May 2015. Other producers such as LafargeHolcim have also reported 'challenging' market conditions. Nationally, cement demand dropped by 3.8% year-on-year to 22.9Mt for the first five months of 2015 according to Indonesian Cement Association data. This was the biggest fall since 2009.
All in all it sounds like the good times may be gone for the Indonesian cement industry, at least for now. The local economy as a whole is in a recession following two consecutive quarters of declining growth in gross domestic product (GDP). Yet cement producers are still forlornly hoping for infrastructure spending to kick in. Throw in worries about the effects of a US interest rate rise on Indonesian borrowing and the situation is looking dicey. Indocement's Citeureup complex may seem even more outsized in a year's time.
UPDATE: A reader has pointed out that we linked the aerial photo at the start of this article to the smaller of the two cement plants in the area. This has now been changed. Note the trucks queuing to enter the plant.
Indonesia: Cement sales for the first seven months of 2015 have continued to decrease. Weak demand, in addition to the Eid al-Fitr holiday period, caused national cement sales for July 2015 to fall by 4.2% year-on-year to 31.3Mt.
Regions with the largest cement consumption drop for July 2015 were Bali and Nusa Tenggara, which saw a 26.5% drop to to 214,540t, Kalimantan with a drop of 23.6% to 208,939t, Java with a 13.9% decrease to 1.79Mt and Sumatra with a drop of 3.3% to 726,000t.
Widodo Santoso, chairperson of the Indonesian Cement Association, is optimistic that cement sales and consumption will increase in the second half of 2015 as the government starts actualising its budget to boost the infrastructure sector. Santoso said that the cement industry would gain 11Mt/yr of additional production capacity from the operation of four new plants from Semen Bosowa, Holcim Indonesia, Semen Merah Putih, Semen Jawa and Semen Conch. The additional cement supply and weakening of cement demand may cause oversupply in the cement industry and create higher competition.
Meanwhile, Semen Indonesia has revised its domestic cement sales growth target to 0% from the initial target of 5%, in line with weak demand in the cement market in the first half of 2015. Agung Wiharto, corporate secretary of Semen Indonesia, said that unsupportive macroeconomic conditions, depreciation of the Indonesian Rupiah and the weakening of commodity prices affected the company's sales for the first semester. Its sales volume for the first half of 2015 decreased by 4.2% year-on-year.
"Semen Indonesia's sales volume in several regions was affected by tight competition with new players and new plants," said Wiharto. He added that he expects the domestic cement market to improve in the third quarter of 2015, in line with actual infrastructure developments to boost cement demand in the private and retail sectors. "Cement sales are expected to again grow by 6 - 8% in 2016 if infrastructure developments continue." Semen Indonesia plans to resume several cement plant expansion projects in Rembang and Padang to meet cement demand growth in the future. The plants in Rembang and Padang will each have capacities of 3Mt/yr.
Indonesia: Indocement Tunggal Prakarsa plans to discontinue production at its P1, P2, and P6 cement plants in Citeureup, West Java to improve efficiency and maintain margin stability amid weak demand in the cement industry.
"We seek to stabilise margins in 2015 by shutting down plants that are not efficient, including plants P1, P2 and P6 in Citeureup," said Christian Kartawijaya, president director of Indocement. He said that operations in plants P1, P2, and P6 were no longer efficient and that they were usually only used as backup when another plant was on maintenance. The lost production from the closure of the three plants will soon be replaced by production from the new 4.4Mt/yr capacity P14 plant, which is due for completion by the end of 2015.
Indocement also plans to reduce fixed costs and to postpone some of its non-urgent projects and expansions, including cutting down 2015's capital expenditure to maintain its performance. "We plan to decrease our 2015 capital expenditure to US$258m, as demand for cement has not risen amid a cement supply hike. Therefore, we will try to postpone our investments," said Kartawijaya. He added that the purchase of stone reserves and the investment in a new cement plant in Pati, Central Java will be postponed.
Indocement's revenues for the first six months of 2015 dropped by 6.6% year-on-year to US$654m due to an 8.8% decline of domestic sales to 8.2Mt. Its market share also shrank to 29.1% from 30.5% in 2014 due to weak domestic consumption, tight competition and oversupply in the national market. The decline in revenue and sales volume also resulted in 4.7% lower earnings (US$226m) before interest, taxes, depreciation and amortisation (EBITDA) and an 8.4% lower net profit at US$169m for the first half of 2015.
Indonesia: PT Semen Indonesia has posted a sharp drop in net profit to US$163m for the first half of 2015, according to Reuters. In the corresponding period of 2014, its net profit was US$207m.
Indonesia: Holcim Indonesia is ready to operate its new US$350m Tuban II plant at the end of 2015, according to Indonesia Finance Today.
Kent Carson, finance director of Holcim, said that in the last three years, the company has aggressively expanded production by building the new Tuban I and II cement plants with a total investment of US$850m. The new plants have 12.5Mt/yr of combined cement production capacity. Holcim Indonesia plans to boost market penetration into a number of areas in East Java and outside Java areas such as in Kalimantan.
Diah Sasanawati, corporate communications manager of Holcim, said that in anticipation of the weakening domestic demand for cement, Holcim plans to export to Vietnam, the Philippines, and Africa. In 2015, the company lowered its annual capital spending by 25% year-on-year to US$250m.
Indonesia: PT Holcim Indonesia Tbk is preparing to merge with PT Lafarge Cement Indonesia after the finalisation of the LafargeHolcim merger.
Deputy corporate secretary Andika Lukman said in statement that the new holding company has started the strategic transformation process, focusing on revenues, capital allocation, commercial transformation and integration of the new holding. "The LafargeHolcim merger could raise revenues up to US$1.53bn in three years after the merger," said Lukman.
Holcim entered Indonesia by acquiring PT Semen Cibinong Tbk shares in 2001 for US$340m in the wake of a monetary crisis. The company was found by Hashim Djojohadikusumo, younger brother of Indonesia's 2014 presidential candidate Prabowo Subianto. Semen Cibinong's name was later changed to PT Holcim Indonesia. Meanwile, Lafarge entered the Indonesian market by acquiring shares of PT Semen Andalas Indonesia, which operates cement plant in Aceh, Sumatera in 1994. Semen Andalas' name was later changed to PT Lafarge Cement Indonesia.
Indonesia: According to Reuters, Indonesian state-owned cement producer PT Semen Baturaja Tbk has posted cement sales that exceed 600,000t so far in 2015, up by 25% from the same period of 2014. Several projects kicking off in South Sumatra contributed to the sales, which have reached only 38% of 2015's target of 1.75Mt.
Indonesia: According to the Jakarta Post, Semen Indonesia has lowered its prices by around 10% so far in 2015 to compete with rivals amid an economic slowdown that has seen a decline in the construction sector. With an increase in competition in the local market, Semen Indonesia had hoped that its exports would boost its revenues, according to company marketing director Amat Pria Darma.
President Joko "Jokowi" Widodo instructed state-owned cement producers to lower their prices in January 2015 to support the government's massive infrastructure projects. However, Darma added that state-run cement producers had to lower their prices further later in 2015 to cope with tighter competition and lacklustre demand. "A number of new plants have started operating and new supplies are coming in. We have to lower our prices to keep up with the market with overall plunging domestic demand," said Darma.
Semen Indonesia saw its domestic sales volumes fall by 5.3% in January – May 2015 to 9.91Mt, even steeper than the national decline in cement demand of around 3.8%. In May 2015 alone, the company's domestic sales fell by around 14%.
While cement demand has contracted since the start of 2015 on the back of the slowing economy, several cement producers have seen additional production from newly operating plants. New players have also entered the market, such as Semen Merah Putih. Semen Indonesia saw its market share in the country slip from 44% in 2015 to 43% in 2015. Darma said that he was pessimistic that Semen Indonesia could achieve its target of seeing sales volume up by around 6% in 2015, or even maintain it at the same position as 2014. The company will instead look to export markets as a strategy to cope with the domestic slowdown.
Semen Indonesia's exports rose by more than eight times from 22,155t in the first five months of 2014, to 184,181t in the same period of 2015. According to Agung Wiharto, the surges were not particularly good news as with high transportation costs, cement makers only exported their production when domestic sales were down and the contribution from exports was not significant. Exports, he said, were made to better ensure that its products were absorbed to maintain utilisation and efficiency. Wiharto said that Semen Indonesia was looking to initiate contract-based exports, in comparison to its current spot sales, in the near future if the economy does not show any signs of improvement. By relying on a six-month to one-year contract, the company could ship more cement, ensuring a more certain market.
"We hope to see our exports hit 1Mt in 2015. The prospect is good, given that some of our traditional markets have no cement producers," said Wiharto. Among Semen Indonesia's major export customers are Timor-Leste, Bangladesh and the Maldives.
Indonesia: Cement consumption fell by nearly 4% year-on-year during the first five months of 2015, the biggest decline in the January - May period in the last six years. The fall has been blamed on the country's slowing economy.
Data released by the Indonesian Cement Association show that cement demand in January - May 2015 fell by 3.8% year-on-year to 22.9Mt. It was the steepest drop so far in 2015. Consumption has declined consistently since February 2015. It was also the biggest drop recorded since 2009, when domestic demand fell by nearly 7% year-on-year due.
Indonesia's economy grew by 4.7% in the first quarter of 2015, the slowest in six years and since the start of the global financial crisis. Cement consumption has been a parameter in emerging markets' economic growth. "Cement demand has not fully recovered yet due to slower economic growth, relatively high interest rates, changes in property regulations and bleak commodity exports, which hampered property demand and consequently reduced cement consumption," said Marwan Halim from the stockbroking arm of United Overseas Bank Ltd, UOB KayHian, in a report. Bank Indonesia has maintained its interest rate at 7.5% to curb inflation and maintain its currency, while mortgage regulation and a lower price threshold for property products subject to 20% income have contributed to constraining the property industry.
Cement consumption in May 2015 fell by 7.9% year-on-year, much steeper than the 1.1% decline recorded in April 2015. It was the biggest May drop recorded since May 2009. Lower sales in May 2015 occurred in almost every part of the country, although East Nusa Tenggara and West Nusa Tenggara Provinces saw monthly sales rise by nearly 50% year-on-year. Commodity-based provinces experienced the highest declines during the month, with South Kalimantan and East Kalimantan making the steepest plunges with 41% and 24%, respectively. Even West Java, which traditionally has one of the highest cement consumption rates in Indonesia, suffered a sales decline of 8.3% year-on-year in May 2015.
Indonesia: Holcim Indonesia has reported that its profit for the first quarter of 2015, which ended on 31 March 2015, was down to US$2.49m from US$24.7m in the same quarter of 2014. Sales for the quarter were US$171m compared to US$180m in 2014. Gross profit was US$40.6m, compared to US$52.5m in 2014, while operating profit was US$11.9m, compared to US$28.5m in 2014.
"The cement industry as a whole faces some significant challenges, in the continued downward trend for this sector of the economy and the absence, so far, of anticipated stimulus from fiscal spending on upgrading infrastructure," said Kent Carson, CFO of Holcim Indonesia. "At the same time, competition has escalated significantly with considerable new capacity introduced, creating substantial oversupply in a market where costs continue to stubbornly climb."