Holcim to Spend Up to $500m on New Cement Plant

Jakarta Globe, Ardian Wibisono & Muhammad Al Azhari, April 27, 2010

Cement maker PT Holcim Indonesia revealed on Tuesday that a cement factory it is planning to build in Tuban, East Java, would cost $400 million to $500 million and construction should start before end of the year.

Holcim Indonesia director Jannus Hutapea said the company was currently seeking approval from its Swiss parent company.

“Our CEO is currently in Switzerland to present our plan to expand our capacity. If wet get approval then we will finalize the plan. We are currently also dealing with permits with the local government and we have already obtained the land,” Jannus said.

Irman Andriesjah, Holcim Indonesia’s deputy chief financial officer, said the new factory needed to be built soon because Holcim Indonesia did not have much spare production capacity left at its two existing factories in Java.

“Looking at the growing demand we will hit maximum utilization in a year,” he said.

It would take around two and a half years to build the new factory, Irman said. Once completed, it would add an extra 1.6 million tons a year of production capacity to Holcim Indonesia’s existing 8.3 million tons a year, he said.

With the new factory located in Tuban, Jannus said, Holcim will also improve its distribution efficiency for eastern Java, which would lead to margin gains.

Alif Sasetyo, a cement analyst at PT Mandiri Sekuritas, said that even if Holcim hit its maximum production capacity before the new factory was completed, the company could divert spare capacity from its Malaysian subsidiary to Indonesia to avoid losing market share.

“They still have 1.2 million tons of spare production capacity in Malaysia,” he said.

According to Mandiri Sekuritas data, Holcim is Indonesia’s third-largest cement producer with 13.9 percent of the total market and 19 percent market of the Javanese market.

Alif said the cement industry is expected to grow by at least 7 percent this year, supported by the property sector, which is being boosted by low interest rates and the improving domestic economy. In 2009, cement sales grew by just 0.9 percent, with total consumption reaching 38.41 million tons.