Cement is an important element for a nation's economy as this binder is a building material used for infrastructure and property development. As such, cement sales gives valuable information about savings and investment in a country. Rapidly accelerating domestic cement sales are a sign that the infrastructure as well as the property sectors are booming. The cement industry of Indonesia is a lively one. The country's total installed production capacity expanded from 37.8 million tons in 2010 to over 100 million tons in 2016, while domestic sales surged from 40 million tons to an estimated 60 million tons over the same period. However, similar to other industries, Indonesia's cement sector has been plagued by Indonesia's economic slowdown that started in 2011. After rapidly rising cement sales in the years 2010-2012, sales started to slow from 2013 onward due to slowing economic growth, weakening purchasing power, low commodity prices, uncertainties surrounding the winners of Indonesia's 2014 legislative and presidential elections, and the higher benchmark interest rate (raised aggressively in 2013 in an effort to combat high inflation, the wide current account deficit and to support the ailing rupiah amid monetary tightening in the USA). Apart from the higher interest rate, Indonesia's central bank also implemented other measures that cooled the country's property market, such as a higher down payment requirement. In 2016 this tighter monetary trend reversed. Bank Indonesia cut its key BI rate and raised the loan-to-value ratio for the purchase of a house in a bid to boost the nation's sluggish property sector. This may bring some new life in this sector in the second half of 2016. The residential property market accounts for the majority of cement demand in Indonesia and therefore the nation's cement players are eagerly waiting for a rebound in the property sector.

1. MARKET CONCENSUS of CEMENT INDUSTRY in INDONESIA
Compiled by
Iwan Budhiarta, B.Sc., M.Sc.Mgmt., M.Eng.Env., CBAP, CPM, CWM, CMT, CIFE
(+628116878999)
(iwan.budhiarta@live.com)
A. INTRODUCTION
Cement is an important element for a nation's economy as this binder is a building
material used for infrastructure and property development. As such, cement sales gives
valuable information about savings and investment in a country. Rapidly accelerating
domestic cement sales are a sign that the infrastructure as well as the property sectors
are booming. The cement industry of Indonesia is a lively one. The country's total
installed production capacity expanded from 37.8 million tons in 2010 to over 100 million
tons in 2016, while domestic sales surged from 40 million tons to an estimated 60
million tons over the same period.
However, similar to other industries, Indonesia's cement sector has been plagued by
Indonesia's economic slowdown that started in 2011. After rapidly rising cement sales in
the years 2010-2012, sales started to slow from 2013 onward due to slowing economic
growth, weakening purchasing power, low commodity prices, uncertainties surrounding
the winners of Indonesia's 2014 legislative and presidential elections, and the higher
benchmark interest rate (raised aggressively in 2013 in an effort to combat high
inflation, the wide current account deficit and to support the ailing rupiah amid monetary
tightening in the USA). Apart from the higher interest rate, Indonesia's central bank also
implemented other measures that cooled the country's property market, such as a
higher down payment requirement.

2. In 2016 this tighter monetary trend reversed. Bank Indonesia cut its key BI rate and
raised the loan-to-value ratio for the purchase of a house in a bid to boost the nation's
sluggish property sector. This may bring some new life in this sector in the second half
of 2016. The residential property market accounts for the majority of cement demand in
Indonesia and therefore the nation's cement players are eagerly waiting for a rebound in
the property sector.
1. Government-Led Infrastructure & Property Development in Indonesia
The Indonesian government, under the leadership of President Joko Widodo, has given
more attention to infrastructure development in order to boost the country's economic
growth in a productive way. The picture below shows that funds allocated to
infrastructure spending has risen markedly in recent years (the steep rise between 2014
and 2015 was primarily caused by reallocating funds from energy subsidies - after
scrapping costly gasoline subsidies in early January 2015 - to infrastructure spending).
Obviously, sharply rising funds for infrastructure development across the archipelago
will boost cement demand, provided that government spending goes smoothly.
According to the latest reports, government spending on infrastructure development
started to gain momentum in the second half of 2015 after a slow start in the preceding
half.
In late-April 2015, the government also launched the "one million houses program", a
government program that seeks to provide adequate housing facilities to low income
citizens (more than half of these houses will be built using funds from the government’s
state budget).
Another program that was launched in 2015 by Indonesian President Joko Widodo is
the 35,000 MW power plant program through which the government aims to have added
a total of 35,000 MW to the nation's existing power capacity by the year 2019. This
implies that we should see the construction of many new power plants in the years
ahead. Construction of a power plant requires cement.

3. Moreover, the new 2009 Mining Law of Indonesia, which includes a ban on exports of
unprocessed minerals, encourages the development of domestic processing facilities
(smelters). This ban came into effect in January 2014. However, due to the lack of
domestic smelting capacity the government postponed the full ban until 2017 (some
companies are allowed to continue raw commodity exports but have to adhere to strict
regulations). Amid the low commodity price environment few miners are interested to
invest in costly smelters and therefore we still expect to see robust smelter development
in the years ahead, provided the Indonesian government remains committed to its latest
policies. Just like power plants, the construction of smelters requires cement.
Funds Allocated to Infrastructure Spending in the Government's State Budget:
2. Stock Performance Semen Indonesia (SMGR), Indocement (INTP) and
Holcim Indonesia (SMCB):*
The three companies that dominate Indonesia's cement market are all publicly-
listed on the Indonesia Stock Exchange. Indonesia's largest cement producer is
state-controlled Semen Indonesia (formerly known as Semen Gresik). This
company controls about 43 percent of the domestic sales market. The second-

4. largest company is Indocement Tunggal Prakarsa with a market share slightly
over 30 percent. On third place - with a market share of around 15 percent -
comes Holcim Indonesia, part of the Swiss-based Holcim Group, one of the
largest cement manufacturers worldwide. Smaller players include the Bosowa
Corporation and Semen Baturaja.
In recent years, a number of foreign cement companies (particularly from China)
have entered the Indonesian market. The influx of new cement producers was
reason why some government officials requested to implement limits to foreign
investment in Indonesia's cement industry. The country's current cement
production capacity already outpaces domestic cement demand and therefore the
arrival of new players would only lead to a larger oversupply (particularly
considering the big cement companies have plans to expand production capacity
in the years ahead) hence causing lower selling prices and limited profitability.
Cement companies in Indonesia were not amused when in early 2015 President
Widodo ordered all state-controlled cement producers to lower selling prices of cement
by IDR 3,000 per bag in order to boost growth in the infrastructure and property sectors.
This also meant that non-listed cement producers had to follow suit in order remain
competitive. However, this policy also reduced cement companies' profitability (and
listed cement producers were hit by a sell-off in mid-January 2015).
In 2016 there arrived five newcomers in Indonesia's cement industry:
(1) Anhui Conch (the local unit of China's cement giant Anhui Conch Cement Company)
with its cement plant in South Kalimantan (having an annual production capacity of 1.55
million tons),
(2) Pan Asia with its Semen Bima brand produced in the company's plant in Central
Java (with an annual cement production capacity of 2 million tons),
(3) Siam Cement - the unit of Thailand's largest cement producer - with its cement plant
in Sukabumi (West Java) that has an annual installed production capacity of 1.9 million
tons of cement,

5. (4) Cemindo Gemilang with its plant in Banten (West Java) that has an annual
production capacity of 4 million tons, and
(5) Jui Shin Indonesia with its plant in Karawang (West Java) that has an annual
production capacity of 2 million tons (its brand is called Semen Garuda).
The influx of new cement players - each providing additional cement production
capacity to the nation's total capacity - implies that cement prices are under pressure.
Several of the new cement companies offer their output at low prices in order to gain
market share, despite domestic cement demand remaining relatively sluggish in the first
quarter of 2016. The larger established cement companies of Indonesia may feel the
need to join this price war in order to defend their market share.
B. PROBLEMS
3. Indonesia Cement Association urges government to restrict producer
permits
The Indonesia Cement Association (ASI) has urged the government to restrict the
issuance of new licenses as the country's cement industry has been experiencing
oversupply. Widodo Santoso, chairman of the ASI, told an industry seminar that there
are 13 cement producers in the country with total production capacity of 92Mt/yr but that
local demand is only reaching 63 – 65Mt/yr, according to Cogencis.
"The government should restrict investment in cement industry by leading the new
cement investment to outside Java where there is no cement industry," said Santoso
said.
Santoso added that 10 cement plants opened in 2015 and that four more are set to start
operation in 2016. By 2017 the country’s cement production capacity may surpass
100Mt/yr. He recommended that local producers increase their exports. The ASI
estimates that exports will increase to 2Mt/yr in 2016 from 0.5Mt/yr in 2015. Countries

6. such as Bangladesh, Sri Lanka, Australia, African countries, and West Asian countries
are among the destinations.
4. Indonesia faces overcapacity
Holcim Indonesia inaugurated a new cement terminal in Lampung last week.
Unfortunately, the spectre of industry overcapacity haunts the country at present and
the subsidiary of LafargeHolcim may be late to the party. The Indonesian Cement
Association (ASI) has been publicly warning the government of overcapacity since the
end of the summer. Its first line of action has been to lobby for restrictions on producer
permits to slow the growth of new plants.
ASI figures show that cement sales in September 2016 fell by 3.3% to 5.64Mt compared
to August 2016 due to lower residential sector demand. Domestic cement sales rose by
2.95% year-on-year to 44.7Mt in the first nine months of 2016 and the ASI expects
sales growth of 3 – 4% for 2016 overall. Yet, the risk of overcapacity is stark. Cement
production capacity has nearly doubled from 59.3Mt/yr in 2012 to 92.7Mt/yr in 2016 but
demand is projected to only reach 65Mt in 2016, leaving a production oversupply of
27.7Mt. Regional consumption has fallen in Jakarta, Banten and West Java, particularly
in the first two. Elsewhere, it has grown, particularly in Central Java, as well as
Yogyakarta and East Java to a lesser extent.
Initial Global Cement Directory 2017 research places active production capacity at
66.3Mt/yr suggesting that the ASI may be exaggerating the risk of overcapacity. The
additional c30Mt/yr capacity arises from plants that have been proposed, that are
actually under construction or that have been mothballed. However, the ASI data should
be more accurate as it represents the local producers. Either way, capacity is growing
faster than consumption as can be seen in graph 1.

7. Graph 1: Cement consumption and production capacity in Indonesia, 2012 – 2016.
Source: Indonesian Cement Association, Global Cement Directory 2012 – 2017.
Semen Indonesia, the country’s largest producer, reported that its revenue fell very
slightly to US$1.4bn in the first nine months of 2016 and its net profit fell by 8.4% to
US$215m. It blamed this on a fall in sales volumes and prices due to rising competition.
The other large producers have said similar in the past. Indocement, the country’s
second largest producer after Semen Indonesia, saw its revenue fall by 11.9% to
US$837m in the first nine months of 2016 and its profit fell by 2.2% to US$231m.
LafargeHolcim described the market as affected by overcapacity and ‘a difficult
competitive environment.’
Back in May 2016 a feature on the predicament facing the Indonesian cement industry
in the Jakarta Post suggested that producers were building new capacity despite the
risks of overcapacity to win market share. Cement producers are about to find out

8. whether this will work or not. Meanwhile it seems unlikely that the measures the ASI is
suggesting will do much to alleviate the looming crisis. Still, on the positive side, it’s
looking like a good time to buy cement as a consumer.
5. Cement Industry of Indonesia Plagued by Oversupply Woes
Over the past two years the cement oversupply in Indonesia has become increasingly
excessive. Indonesia's total annual installed cement production capacity has now risen
to 106.3 million tons, while domestic demand may not exceed 65 million tons in 2017.
Moreover, production capacity will rise further this year as Semen Indonesia will open
two new plants later this year.
Widodo Santoso, Chairman of the Indonesian Cement Association (ASI), therefore
urges the government to impose a moratorium on the construction of new cement plants
in Indonesia. To protect the interests of existing cement manufacturers, ASI wants to
see a significantly rising utilization rate of domestic cement production capacity.
Currently, Indonesian cement producers only use an average 70 percent of their total
production capacity.
Between 2010 and 2013 domestic cement demand in Indonesia rose steeply amid the
nation's property boom (this boom cooled in 2014) and therefore existing domestic
players decided to invest heavily in business expansion (boosting their production
capacity), while new foreign players entered, lured by the promising perspectives.
This led to surging cement production capacity in Indonesia. However, growth of
cement demand stagnated starting from 2013 as the property sector cooled (while
overall economic growth of Indonesia was also sliding). ASI estimates that - with
cement demand growing an average of 5 percent per year in Indonesia - it will require
ten years for cement sales to catch up with the nation's total installed production
capacity.

9. A side-effect of the cement oversupply is that cement prices are declining by about 1
percent per year. For example, in 2015 a bag of cement cost IDR 70,000 (approx. USD
$5.25) on Java island. Currently, the price has fallen to IDR 55,000 per bag on the same
island.
In the January-July 2017 period Indonesian cement sales rose 4.4 percent year-on-year
(y/y) to 34.6 million tons.
Installed Production Capacity Indonesian Cement Producers:
Company
Production Capacity
(in million metric tons)
Semen Indonesia Group 35.5
Indocement Tunggal Prakarsa 24.9
Lafarge Holcim Indonesia 14.5
Semen Merah Putih 7.5
Semen Bosowa 7.0
Semen Anhui Conch 4.5
Semen Baturaja 3.8
Semen Pan Asia 1.9
Siam Cement Group 1.8
Semen Jui Shin 1.5
Semen Serang (Haohan) 1.2
Semen Jakarta 1.0
Semen Hippo 0.6
Semen Kupang 0.3
Semen Puger 0.3
Source: Kontan
Indonesian Cement Sales 2008-2016:
Year Cement Sales YoY

10. Growth
2016 62 million +1.6%
2015 61 million +1.8%
2014 60 million +3.3%
2013 58 million +5.6%
2012 55 million +14.6%
2011 48 million +20.0%
2010 40 million +4.2%
2009 38.4 million +1.1%
2008 38 million -
Source: Indonesian Cement Association (ASI)
6. Cement sales in Indonesia have increased rapidly in recent years, with
2016 set to follow that trend
The cement industry in Indonesia is set to reach new highs in 2016, as the
government’s expansive infrastructure agenda drives domestic demand and sales
growth across the country. Existing producers are rushing to increase capacity with the
launch of new facilities, while a host of new foreign players has also entered the market
in recent years, bolstering production capacity and foreign direct investment (FDI)
inflows, and helping the country to overtake Vietnam as the leading regional cement
producer.
6.1. Domestic Strength
Domestic cement sales have recorded seven consecutive years of positive growth, with
the Indonesian Cement Association (ASI) reporting that sales rose by 1.1% in 2009 to
hit 38.4m tonnes, followed by annual increases of 4.2%, 20% and 14.6% in 2010, 2011
and 2012, respectively, to reach 55m tonnes. The growth trajectory has continued
despite an economic slowdown, and sales rose by 5.6% in 2013, 3.3% in 2014 and
1.8% in 2015 to reach 61m tonnes, a 60.5% increase over 2008 levels.

11. The country’s cement industry is dominated by four major producers, including the
state-owned Semen Indonesia, the country’s largest producer with a 44% market share,
followed by Indocement Tunggal Prakarsa, Holcim Indonesia and Semen Baturaja.
Originally known as Semen Gresik, Semen Indonesia was established in 1957 and its
production capacity is set to hit 30m tonnes annually by the end of 2016. Indocement
was established in 1975 and produces the Tiga Road brand of cement, with total
installed design capacity of 18.6m tonnes as of 2014. Holcim holds a market share of
around 15% in Indonesia, with a combined cement production capacity of 9.1m tonnes,
while Semen Baturaja, which became a state-owned enterprise in 1991, before floating
nearly 24% of its shares through an initial public offering in 2013, produced 1.3m tonnes
of cement in 2014.
6.2. Growth Drivers
A number of factors are supporting rising cement sales in Indonesia, most notably the
government’s enormous infrastructure agenda, which envisions the construction of 2650
km of roads, 15 new airports, refurbishment of 24 ports, urban and national rail
networks, 49 dams, two new oil refining units and over 500,000 new housing units. ASI
chairman Widodo Santoso told Indonesia Investments, a subsidiary of Dutch investment
firm Van der Schaar Investments, in January 2016 that although government spending
on infrastructure was sluggish during the first half of 2015, project development picked
up during the second half, and will be further bolstered by a new disbursement system
in which projects for the coming fiscal year can be tendered and financed earlier (see
Construction overview).
Monetary tightening by the central bank, Bank Indonesia (BI), had also weighed on
project development, with relatively high interest rates weakening the private sector’s
purchasing power and delaying the start of property and infrastructure projects.
However, the bank cut the benchmark rate by 25 basis points in January, February and
March 2016, bringing it from 7.5% to 6.75% and signalling a pro-growth approach to

12. lending. This has lent a more optimistic outlook to forecasts for 2016, with the World
Bank projecting that GDP growth will hit 5.3%.
These factors are already spurring sales and export growth. Although sales increased
by just 1.8% in 2015, ASI reported in March 2016 that sales rose 3% year-on-year (y-o-
y) in February to 4.5m tonnes, as infrastructure development accelerated. Growth was
driven by a 16.5% sales increase in Sumatra to 2.1m tonnes, a 33% rise in Sulawesi to
841,000 tonnes and a 31% increase in the Moluccas and Papua to 125,000 tonnes.
Cement exports reached 110,000 tonnes in the same month, according to ASI. The
following month, Trimegah Securities announced that sales rose 4.2% y-o-y during the
first quarter of 2016 to 19.3m tonnes, supported by 600,000 tonnes of supply provided
by three new operators and rising demand.
6.3. Capacity Upgrades
To meet rising demand, existing cement players have invested heavily in new
production facilities, and in late 2015 and early 2016 four new cement plants
constructed by Semen Bosowa, Holcim Indonesia, Semen Merah Putih, Semen Jawa
and Semen Conch began operation, bringing the country’s total installed capacity to
92m tonnes annually. In December 2015 Semen Indonesia announced that it had
targeted increasing its production capacity from 28.5m tonnes in 2015 to 30m tonnes in
2016. The company, which owns several plants on the islands of Java, Sumatra and
Sulawesi, will continue to increase the number of packing plants in its portfolio to
support a rise in production, according to CEO Suparni Somoredjo, and has targeted
5% revenue growth in 2016, with its new Indarung VI plant in West Sumatra and a plant
in Rembang, Central Java, expected to come on-line in the third quarter of 2016.
6.4. New Players
In addition to ongoing expansion plans for existing industry players, new market
entrants are having an impact on production capacity. In April 2016 Indonesia
Investments reported that a total of five new players either already had entered or would
enter the market in 2016, including Anhui Conch, a local unit of the Chinese cement

13. giant Anhui Conch Cement Company, which established a cement plant with 1.6m
tonnes of capacity on South Kalimantan; Pan Asia, which produces the Semen Bima
brand from a plant in Central Java with annual production capacity of 2m tonnes; and
Siam Cement, a unit of Thailand’s largest cement producer, which operates a cement
plant in Sukabumi on West Java, offering installed production capacity of 1.9m tonnes
annually. Cemindo Gemilang also operates a plant on West Java, in Banten, offering
production capacity of 4m tonnes, as well as Jui Shin Indonesia, from Karawang on
West Java, with capacity of 2m tonnes of Semen Garuda brand cement annually.
6.5. Oversupply
Rising capacity poses a significant problem for domestic producers, however. Although
the ASI reports that domestic cement demand is forecast to rise by more than 5% in
2016, a strong performance after 2015’s 1% expansion, this will still only bring it to 65m
tonnes this year, creating serious market oversupply. Indeed, in September 2015 ASI
forecast Indonesia will become Asia’s largest cement producer in 2017, outstripping
Vietnam, as eight new production plants begin operations. According to a March 2016
report published by DBS Vickers Securities, a Singapore-based brokerage firm, an
additional 19.3m tonnes of new installed capacity is expected to come on-line in
Indonesia by the end of 2017 ( compared to ASI’s forecast of 24m tonnes), with foreign
entrants forecast to comprise 12% of total industry capacity by 2018, up from current
levels of 6%.
“Considering the supply-demand imbalance, the industry’s design capacity utilisation
rate will continue to drop to 67% in 2017, a similar level to 2004, and put pressure on
price and subsequently margins,” wrote the company. According to Sim Putra Bradley,
president director of Beton Indotama Surya, a lack of government regulation is reducing
the quality of concrete offered, which often causes costly demolition and reconstruction.
“Contractors are looking too much at price and forget quality,” Bradley told OBG.
6.6. Export Focus

14. This means export growth will be critical for the country’s cement producers, although
cement exports from Indonesia are far outstripped by domestic sales at present — for
example, of the 4.5m tonnes of cement sales recorded in February 2016, exports
comprised just 2.4%. According to ASI, the most high-potential markets for cement
export growth include Bangladesh, the African continent, Australia, the Philippines and
the Middle East.
Indonesia’s major cement producers have taken note, and the industry is increasingly
focusing on exports. Semen Indonesia, for example, intends to focus on consumers in
the eastern regions of Sumatra and North Sumatra, with a view to exporting some
production to Myanmar, Malaysia and Singapore, in addition to targeting Bangladesh,
which meets 85% of its cement needs through imports.
In addition to a planned Aceh factory, the company announced in October 2015 that,
together with the state-owned Semen Kupang, it would build a new cement factory in
Kupang, East Nusa Tenggara, with an annual production capacity of 1.5m tonnes, of
which 40% will be exported. The Rp2.5trn ($182.5m) project is expected to begin
operations in 2019. Although China’s severe cement oversupply is likely to weigh on
export growth, an emphasis on exports should help to keep the sector on a growth path.
C. 2017 Update on Indonesia Cement Market
One of the surprises from the recent round of half-year results has been
HeidelbergCement’s struggle to grow its sales so far in 2017. Part of this has been
down to a variable market in Indonesia where the German cement producer runs the
second largest player, Indocement.
Cement consumption for the country as a whole dropped by 1.3% year-on-year to 29Mt
in the first half of the year, according to Indonesian Cement Association figures. This
appears to be due to a particularly poor month in June 2017 where local consumption

15. fell by 27% to 3.7Mt. Prior to that, consumption was actually showing 4% growth up until
the end of May.
Fairly reasonably HeidelbergCement blamed the decline in part on this year’s timing of
Ramadan. Unfortunately this could not explain everything, as its total sales volumes
including exports fell by 2.4%. Remove the exports and its sales volumes fell by 4.4%,
more than the national average. It said this was due to its concentration in weaker
markets in Jakarta, Banten, and West Java where competition pressures had forced
prices down ‘significantly.’
They weren’t alone in feeling the pain in June 2017 with both Semen Indonesia and
LafargeHolcim reporting reduced sales. However, LafargeHolcim also raised the issue
of production overcapacity creating increased sales volumes and pushing down prices.
This was reflected in lower earnings for its Asia Pacific division. HeidelbergCement too
saw its earnings crumble.
Graph 1: Cement production capacity and consumption. Source: Semen Indonesia
investor presentation, March 2017.

16. Graph 1 shows quite nicely the fix the Indonesian cement market is in at present.
Consumption surpassed production capacity in the early 2010 before incoming capacity
jumped ahead again around 2013. You can also view Global Cement’s version of
this graph here. Even at an optimistic annual growth rate of 8%, consumption won’t get
close to capacity until 2020. Yet before the market collapsed in June, consumption was
growing at 4%, which is the weakest of Semen Indonesia’s growth scenarios.
Admittedly the graph is in an investor document so we can forgive ebullience but they
are going to need a magic bullet to dodge this one. Lucky then that the graph also has
infrastructure highlighted. The cement producer says that the Indonesian government
earmarked US$26bn for infrastructure spending in 2017 and that this spending
campaign can be seen in the changing ratio of bulk to bagged cement it has been
selling. Independent of Semen Indonesia, the Fitch credit rating agency was also
predicting rising consumption off the back of infrastructure plans in a report it put out in
June.
However, as more cement plants are being built, cement plant utilisation rates seem
destined to stay subdued for the foreseeable future unless the government seriously
ups its infrastructure investment or unless the economy goes into overdrive.
Unsurprisingly exports have shot up so far in 2016, by 74% to 1.14Mt. Cement
producers in neighbouring countries beware!
7. Cement Industry Indonesia Update: Positive Domestic Sales & Exports
Cement consumption continued to improve in Indonesia in August 2017 on the back of
rising demand from Java and the eastern region of Indonesia. Widodo Santoso,
Chairman of the Indonesian Cement Association (ASI), said Indonesia's cement
consumption rose 9 percent year-on-year (y/y) to 6.47 million tons in August 2017.

17. Meanwhile, in the January-August 2017 period cement sales in Indonesia accumulated
to 41.1 million tons, up 5.6 percent (y/y) from cement sales in the same period one year
earlier. Santoso informed that most regions across Indonesia showed rising demand for
cement (with the exception of Kalimantan and Nusa Tenggara).
Rising cement consumption across most regions of Indonesia is attributed to
infrastructure development. Santoso said infrastructure development projects are
beginning to show good progress on Java, Sumatra, Sulawesi and the eastern part of
Indonesia and therefore require more supplies of cement.
Highest growth of cement consumption was recorded on Java, the island that,
traditionally, forms Indonesia's largest cement consumer. In August 2017 cement sales
on Java rose 14 percent (y/y).
Meanwhile, exports of cement and clinkers from Indonesia showed even more
impressive growth (although coming from a low base). According to data from ASI,
exports of Indonesian cement and clinkers rose 120 percent (y/y) to 412,000 tons in
August 2017. Combined, during the first eight months of the year, exports of cement
and clinkers are up 78 percent (y/y), accumulating to 1.85 million tons.
Sharply rising exports are the result of Indonesian cement producers' efforts to boost
sales. Starting from 2013 domestic cement sales started to slow significantly as
Indonesia's property market cooled. Initially, this slowdown did not impact too drastically
on local cement producers. However, in the years 2013-2017 several new cement
manufacturers (including foreign ones) entered the Indonesian market, while existing
companies invested in the expansion of their production facilities. A huge cement
oversupply situation was created on the Indonesian market that put downward pressure
on cement prices. Therefore, starting from 2016 local cement manufacturers started to
turn to export markets in a bid to improve their corporate earnings.

18. Rising exports and rising domestic consumption on the back of infrastructure projects
are hoped to push domestic cement sales by 5-6 percent (y/y) to 65 million tons and
overseas sales by 75 percent (y/y) to 2.85 million tons in full-year 2017.
8. Indonesia's Cement Market & Export Competitiveness
Indonesia's state-controlled cement manufacturer Semen Indonesia experienced a 8.8
percent year-on-year (y/y) increase in domestic cement sales to 2.77 million tons in
October 2017. Meanwhile, the company's cement exports jumped a whopping 131.2
percent (y/y) in the same month. However, these exports (145,271 tons of cement in
October 2017) come from a low base.
Total cement sales (domestic sales + exports) of Semen Indonesia, the biggest
producer of cement in Indonesia, grew 11.8 percent (y/y) to 2.91 million tons in October
2017.
In the January-October 2017 period the company's sales accumulated to 23.69 million
tons, up 9.3 percent (y/y) from total sales realization in the same period one year earlier.
However, when we compare the operational performance of Semen Indonesia with
overall cement sales and exports in Indonesia in October 2017, then Semen Indonesia's
performance is below the national average. Whereas total cement sales in Indonesia
rose 12.5 percent (y/y) in October, Semen Indonesia only managed to post a 8.8
percent growth pace.
October is usually a month in which cement sales in Indonesia peak before declining in
the next two months when weather conditions tend to disturb progress with property and
infrastructure projects, while December is a holiday period (Christmas and New Year
celebrations).
Meanwhile, the average price of cement fell in October by around 1.5 percent. Despite
rising cement demand, the price fell due to the structural oversupply situation on the

19. Indonesian market. Indonesia's total annual installed cement production capacity has
now risen to 106.3 million tons, while domestic cement demand may not exceed 65
million tons in 2017. Moreover, the nation's overall production capacity will rise further
as several existing cement players - including Semen Indonesia - continue to invest in
production expansion.
Cement consumption in Indonesia grew 5.7 percent year-on-year (y/y) to 41.1 million
tons in the January-August 2017 period (compared to the same period one year earlier).
This can be labelled a rebound compared to bleak growth of 1.8 percent (y/y) and 1.6
percent (y/y) in 2015 and 2016, respectively. This year Indonesian cement demand
could in fact reach 64 million tons.
However, Indonesia's annual installed cement production capacity has now reached
107.9 million tons (based on information from the Indonesian Cement Association, or
ASI), almost twice as much as national demand.
This is a concern because Indonesia is not a big cement exporter, hence local cement
companies have to offer very competitive prices on the domestic market amid this
oversupply situation. Moreover, as domestic demand is limited part of their production
capacity remains unused. Considering these cement companies have invested heavily
in business expansion, especially in the 2009-2012 period amid the property boom (and
often using bank loans to finance expansion programs), their financial situations are
under pressure. This especially applies to the smaller Indonesian cement producers.
The bigger ones, including those listed on the Indonesia Stock Exchange, have bigger
cash reserves at their disposal.
Romauli Panggabean, analyst at Bank Mandiri, noted that in terms of cement
production capacity Indonesia has nearly outperformed US cement capacity (which is
estimated at 108 million tons per year). In 2014 the USA was in fact the world's third-
biggest cement producer. However, if Indonesia's cement demand only rises by an
average of 4 percent per year, it would take up to 2030 before Indonesian cement

20. demand and production capacity are on par (provided the nation's cement capacity
remains at the same level during this period).
In this situation two matters are important: (1) the government should discourage new
players entering the cement industry in order to curb production capacity expansion,
and (2) existing players should boost their cement exports.
Indonesian Domestic Cement Sales 2008-2017:
Year Cement Sales
YoY
Growth
2017¹ 64 million +3.2%
2016 62 million +1.6%
2015 61 million +1.8%
2014 60 million +3.3%
2013 58 million +5.6%
2012 55 million +14.6%
2011 48 million +20.0%
2010 40 million +4.2%
2009 38.4 million +1.1%
2008 38 million -
¹ forecast
Source: Indonesian Cement Association (ASI)
If we take a look at the world's biggest cement importers (2016 data), then we see three
Asian countries ranked within the top 10 (see table below): Bangladesh, the Philippines,
and Singapore. These three countries should become the main targets of Indonesia's
domestic cement manufacturers. In fact, Indonesia already exports a significant chunk
of cement to Bangladesh, therefore the Philippines and Singapore are the true potential
growth centers.

21. However, despite the proximity to the Philippines and Singapore, Indonesian cement
exporters fail to boost shipments to these countries. There are several reasons, and all
are related to competitiveness. Fierce competition originates from Japan, Vietnam and
China. Especially, Japan has recently been able to offer competitive rates as the yen
has been weakening, while the quality of Japanese cement is great.
Meanwhile, Vietnam - an important cement supplier to Bangladesh and the Philippines -
can keep its cement rates low due to cheap labor. Lastly, China may actually be the
biggest rival. China, the world's largest cement producer with its annual cement
production capacity at 2.5 billion tons (and where there also occurred a massive
oversupply situation due to China's economic slowdown), can offer its cement for USD
$50.5 per ton, while Indonesia's most competitive price is USD $93 per ton.
Therefore, Indonesia also needs to focus on optimizing production efficiency on order to
be able to offer competitive cement to foreign buyers in Asia. Another strategy - as in
the case of Semen Indonesia - is to acquire an existing cement manufacturer abroad
(for example in Vietnam) or develop a factory there.
World's Biggest Cement Importers in 2016:
Country
Import Volume
(in million tons)
United States 13.5
Bangladesh 9.4
the Philippines 6.4
Oman 5.7
Singapore 5.1
Algeria 4.8
Ghana 4.5
Kuwait 4.0
Australia 3.8

22. France 3.6
Source: Kontan
9. Credit agency says cement sales picking up in Indonesia
The Fitch credit rating agency says that cement sales are starting to rise due to
increased investment in infrastructure projects but that overcapacity will continue to limit
improvements in cement producers' profitability. Indonesian Cement Association's (ASI)
data show that domestic cement sales volumes rose by 7% year-on-year in May 2017
to 5.5Mt. Sales volumes for January to May 2017 increased by 4% to 25.3Mt.
Fitch has attributed this growth to a 13% growth in sales of bulk cement, which is used
mainly for infrastructure-related developments. By region, the main driver of the
increase was in central Java, where toll road projects are underway and where sales
rose by 17%. Demand for bagged cement, which is generally used for property
developments, rose by 5% in May 2017.
10. Indonesian cement demand up 13% in October
The Indonesia cement market expanded 12.5 per cent YoY to 6.754Mt in October 2017,
according to data from the Indonesian Cement Association (ASI). The key market of
Java reported a 17 per cent increase with local demand rising from 3.202Mt in October
2016 to 3.745Mt one year later with growth particularly robust in Banten, West and
Central Java.
Indonesia’s second-largest market, Sumatra, saw demand increase by 7.8 per cent YoY
to 1.494Mt. Kalimantan’s cement consumption advanced by 6.1 per cent YoY to
434,824t. Growth was also particularly strong in Indonesia’s smallest markets. Nusa
Tenggara saw its market expand by 27.3 per cent to 388,595t while Maluk and Irian

23. Jaya noted a 24.3 per cent rise in demand to 163,539t. Only Sulawesi saw its
consumption contract by 7.3 per cent to 527,292t.
In addition, cement exports increased 20.4 per cent to 75,671t and clinker exports 47.8
per cent to 197,012t. In the first 10 months of 2017, Indonesian cement consumption
grew 7.3 per cent to 54.186Mt when compared with 50.507Mt reported in 10M16.
Java’s cement market expanded by 11.9 per cent to 30.707Mt while consumption in
Sumatra and Nusa Tenggara grew by just under five per cent to 11.482Mt and 3.076Mt,
respectively. Kalimantan noted the biggest drop in demand to 3.337Mt, Sulawesi by 1.7
per cent to 4.369Mt and the Maluku and Irian Jaya market contracted 1.5 per cent to
1.215Mt.
Cement exports in 10M17 more than doubled to 860,065t while clinker exports rose
45.4 per cent to 1.426Mt.
Information Resouces:
1. https://www.indonesia-investments.com/business/industries-
sectors/cement/item6179
2. http://www.globalcement.com/news/item/5311-indonesia-cement-association-
urges-government-to-restrict-producer-permits
3. http://www.globalcement.com/news/item/5521-indonesia-faces-overcapacity
4. https://oxfordbusinessgroup.com/analysis/concrete-proposals-cement-sales-
have-increased-rapidly-recent-years-2016-set-follow-trend
5. http://www.globalcement.com/news/item/6431-update-on-indonesia
6. https://www.indonesia-investments.com/news/todays-headlines/cement-industry-
indonesia-update-positive-domestic-sales-exports/item8196
7. https://www.indonesia-investments.com/business/business-columns/what-about-
indonesia-s-cement-market-export-competitiveness/item8269?

24. 8. https://www.indonesia-investments.com/news/todays-headlines/domestic-
cement-sales-exports-semen-indonesia-rise-in-october/item8379
9. http://www.globalcement.com/news/item/6216-credit-agency-says-cement-sales-
picking-up-in-indonesia
10.https://www.cemnet.com/News/story/163010/indonesian-cement-demand-up-13-
in-october.html