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Jakarta Post

Fuel-price hike may boost cement demand

  • Anggi M. Lubis

    The Jakarta Post

Jakarta   /   Mon, November 17, 2014   /  10:45 am

Major cement producer Semen Indonesia is confident about posting 6 percent growth next year, in line with growth in demand projected by cement associations.

The upcoming fuel-price hike, however, will be a key factor as to whether or not the company can put in a better performance than in 2014.

This year, the cement business has been slow due to political tensions as a result of the April 9 legislative election and the July 9 presidential election.

Semen Indonesia corporate secretary Agung Wiharto said that after this year'€™s sluggish business the company hoped that political stability would eventually drive growth. He hoped its sales could match the country'€™s projected 6 percent increase in cement consumption next year.

'€œWe hope to score growth in line with, or above, the projected increase in national cement consumption,'€ Agung told The Jakarta Post over the weekend.

Semen Indonesia initially predicted that, in line with projections from cement associations, this year'€™s consumption would increase by around 5 to 6 percent from last year'€™s demand of 58 million tons.

The prediction was, however, later revised down to around 3.5 percent to 4 percent, as consumption slowed amid holdups in construction and infrastructure projects and an unfavorable investment atmosphere during the year.

Agung said growth next year, however, would greatly depend on the fuel-price hike expected to be announced soon by President Joko '€œJokowi'€ Widodo. '€œFuel prices have two effects on the cement industry. First, the hike is expected to reduce purchasing power and there will be higher inflation and so on. This will affect cement demand from retail consumers,'€ he said.

The fuel-price hike is part of the government'€™s effort to reduce fuel subsidies and allocate the spending on productive activities and infrastructure development.

'€œThe funding taken from the fuel subsidies will be channeled to infrastructure projects and there will hopefully be rising demand from infrastructure construction.'€

  • Fuel-price hike will curb consumer spending
  • However, govt will allocate savings to infrastructure development to boost demand for cement
  • Cement sales estimated to rise 6 percent next year

Fuel subsidies are estimated to hit Rp 291 trillion (US$24 billion) next year, accounting for 15 percent of overall state spending. The ballooning subsidies are regarded as a burden on the state'€™s current account, and economists say the subsidies should be channeled to more productive sectors, such as infrastructure.

Data from the Indonesia Cement Association (ASI) shows that cement demand, which is a key indicator of an emerging country'€™s growth, grew by only 3.4 percent year-on-year (y-o-y) from 47.16 million tons between January and October last year to 48.75 million tons in the same period this year. The figure is below the growth experienced in the first ten months of 2013, when cement consumption rose by 5.7 percent on an annual basis.

Figures from the ASI showed domestic cement sales rose 14.5 percent in 2012, 17.7 percent in 2011, 6 percent in 2010 and only 0.9 percent in the election year of 2009.

Semen Indonesia'€˜s grip of the total cement market stands at around 44 percent.. The company'€™s domestic sales rose by 3.5 percent y-o-y to 21.38 million tons, according to the company'€™s documentation, far below the 14 percent in the same period a year earlier.

It rounded up the nine-month period with net profits of Rp 4.09 trillion, a 4.9 percent increase y-o-y. The firm'€™s revenues surged by 10.9 percent during the January to September period to Rp 19.3 trillion from Rp 17.4 trillion in the same period last year.

The figures, however, are below last year'€™s nine-month period growth of 15.2 percent in net profits and 27.2 percent in revenues.

Agung said Semen Indonesia would spend around Rp 5 trillion in capital expenditure (capex) next year, the biggest chunk, around 40 to 50 percent, of which would go to the company'€™s under-construction $352-million Indarung VI plant in Padang, West Sumatra, and $400-million plant in Rembang, Central Java.

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