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Cement demand on the up despite rising price
Cement consumption is expected to grow at a similar pace to last year despite price increases introduced by cement producers in an attempt to compensate for the higher cost of electricity and projected lower economic growth
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Cement consumption is expected to grow at a similar pace to last year despite price increases introduced by cement producers in an attempt to compensate for the higher cost of electricity and projected lower
economic growth.
Indonesian Cement Association chairman Widodo Santoso said on Friday that cement consumption would rise 6 to 7 percent this year.
'Total demand will be at 63 million tons, 62 million of which will come from local production and around 1 million from imports,' he said.
Booming property projects and infrastructure development have been key drivers in increasing cement consumption.
Domestic consumption reached 58 million tons last year, increasing about 5.5 percent from the 54.96 million tons in 2012, according to figures from the cement association. Last year's increase was the slowest growth since 2010 as the country also reported slower economic growth due to the weakening global economy.
Java remains the country's main cement market, which accounted for 32.7 million tons from, or 56 percent of, total consumption last year.
Meanwhile, areas outside Java reported demand growth ranging from 1.4 percent to 7.6 percent, except Maluku and Papua, where consumption dropped 1.9 percent drop last year. Plunging commodity prices have affected development in resource-rich provinces and in turn demand for cement.
The cement industry will also face a new challenge this year as the government plans to increase electricity rates for large-scale consumers in an attempt to reduce the energy subsidy.
Earlier this week, the Energy and Mineral Resources Ministry obtained approval from House of Representatives Commission VII to increase electricity rates 38.9 percent for companies using more than 200 kilovolt amperes (kVA) and 64.7 percent for those using 30,000 kVA.
The rates will be introduced gradually, with increases every two months from May until December. However, the amount of each increase has not been determined.
Widodo said the increase in electricity rates would force cement-makers, which mostly fall in the category with a 38.9 percent increase, to raise their selling prices.
'We are waiting for the exact bimonthly percentage increase. Cement companies' spending on electricity is usually 15 to 20 percent of their total cost,' Widodo said, adding that cement-makers would likely tag an about 5 percent increase onto their products to anticipate the electricity increase every two months.
He added that the increase in cement prices following producers' decision to pass the higher cost onto customers would only slightly affect demand as spending on cement was not a major part of the total expenditure of a project.
'For building construction, spending on cement is about 10 percent of the total expenditure. Meanwhile, for infrastructure projects, it is 25 to 30 percent,' he said.
Many construction companies expect a slowdown in their business this year amid the projected decline in economic growth.
Jakarta-listed PT Semen Indonesia estimates that the planned electricity rate increase will push up its production costs by only by 2 to 3 percent, thanks to power sourced from its own power plants.
Semen Indonesia corporate secretary Agung Wiharto said the company would monitor whether the company's competitors increased their selling prices before making a decision.
'Competition is very tight. We will perform efficiency measures; passing the higher cost onto customers would be our last option,' he said. He added that any increase in electricity rates would certainly weaken people's purchasing power.
'However, if we look at it from another angle, an increase in electricity rates means a cut in [energy] subsidy spending. If the government can divert the money it saves on subsidy spending to infrastructure development, it would be good for the cement industry,' Agung said.
The World Bank projects Indonesia's gross domestic product (GDP) growth will slow to 5.3 percent in 2014, from 5.6 percent in 2013. Most of the slowdown will be driven by the reduction in investment spending ' growing by only 4.5 percent in the third quarter ' reflecting mainly reductions in machinery and equipment investment.
