Analysis: Threats from other countries’ cement producers
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The two largest important cement producers, China and India, are currently facing oversupply.
Despite expected annual 8-9 percent growth in domestic consumption with penetration rate of 176 kilograms, India’s cement plants are currently running at only 73 percent of total capacity of around 340 million tons with 100 million tons additional capacity to be added over the next 3 years.
At the same time, volume growth in China is expected to slow to around 8 percent from over 10 percent in 2011 as the government attempts to curb growth in property market against speculations. This has resulted in additional volume surplus from installed capacity of between 2 billion tons (up from 1.88 billion tons in 2010), while another 300 million tons is under construction. This translates into total exportable capacity of around 180-200 million tons (excluding new capacities).
Most countries are facing slow-down in volume growth on the back of continued global economic uncertainties, causing wide-spread oversupply conditions.
Ironically, Indonesia’s cement industry remains solid as production utilization rate exceeds 90 percent and local demand continues growing 9-12 percent per annum on strong housing demand and positive effect of the new land clearing bill.
This has encouraged existing cement producers to expand capacities and new foreign players to enter the industry. In 2012-2017, we expect more than 50 million tons of added capacities, of which 20 million tons stem from new entrants (assuming no obstacles for new players to procure locations and local permits).
Meanwhile, cement influx from other countries have entered the local market with competitive pricing structure. However, these importers face constraints such as brand loyalty, logistics and local distribution.
Overall, we still believe that Indonesia remains as a country with a buoyant cement prospect.
Likewise, Myanmar’s low cement penetration rate of less than 100 kilograms per capita ensures volume growth ahead while its cement demand volume has exceeded 5 million tons with local cement producers having 40 cement facilities and a combined capacity of 2.9-3.4 million tons provides an opportunistic investment. This translates to 2 million tons of cement shortage per annum, imported mainly from Thailand.
Other benefits to investing in Myanmar include low labor cost (i.e., US$80 per worker per month), abundant natural resource (i.e., coal, gold, etc), 3-year tax holiday (proposed to 5-years), exemption of import and export duties and strategic location with direct access to China and India.
The writer is the deputy head of research at PT Bahaha Securities