Cement Companies Plan New Plants to Capitalize on Buoyant Economy

Jakarta Globe, Yohanes Obor, March 16, 2010

The country’s three largest cement producers are all planning to build new factories over the next few years to meet an expected surge in demand as the economy heats up and the government launches more infrastructure projects.

PT Indocement Tunggal Prakarsa, the country’s second-largest cement maker, on Monday became the latest to announce expansion plans. The company said it was studying possible locations for new factories with a combined annual production capacity of 2 million to 3 million tons. It did not say how many plants it would build, and has previously announced its intention to build a factory with an annual capacity of 1.5 million tons near its existing plant in Citeureup, near Bogor, West Java, by 2012.

Indocement is expected to start operations at two new factories, built for $35 million in Cirebon, West Java, in April or May.

The company said its current production capacity is 17.1 million tons a year, which would rise to 18.6 million tons this year, 21.1 million tons by 2012 and 23.1 million tons in 2014.

PT Holcim Indonesia, the country’s third-largest cement producer, announced plans on March 8 to build a new factory in Tuban, East Java, with a production capacity of 1.7 million tons. It said construction may start by the end of the first half of this year and should take about three years to complete.

Holcim president director Eamon Ginley said the new plant would bring the company’s total production capacity to 10 million tons per year.

Indonesia’s largest cement company, PT Semen Gresik, has said it plans to build two new factories in Java and Sulawesi over the next few years, with the goal of raising annual production capacity from 19 million tons this year to 25 million tons in 2012 and 29 million tons by 2015.

Sonny John, an industry analyst at PT Samuel Sekuritas Indonesia, said domestic cement plants would run at a high utilization rate through at least 2014 as demand surges and producers scramble to add capacity.

“Though Semen Gresik and Indocement plan to add production capacity of 10.8 million tons over the next five years, we expect their utilization will be above 80 percent, compared to the current industry-wide total utilization rate of 65 percent,” Sonny said.

He said it takes two or three years to build a new cement plant and producers would struggle to find locations that offered the required infrastructure, easy access to raw materials and freedom from difficulties with land clearance and social and environmental issues.

Regardless, Lucky Ariesandi, an analyst at PT Kim Eng Securities, said the country’s strong economy and the government’s push to develop infrastructure ensured a robust outlook for the domestic cement industry.

“We forecast domestic cement consumption to grow 5.9 percent in 2010 to 40.6 million tons. We believe this estimate is conservative and leave open the possibility of upside surprises,” he said.

As of January, Indocement had increased its estimated market share to 30.6 percent, while Holcim’s market share rose to 13.8 percent. Semen Gresik saw a decline to 43 percent.