A recurring quandary<\/p>\n
Obviously, the stated readiness of Indonesian cement producers
\nto increase supplies in order to alleviate the current domestic
\nshortages must seem at least hint of relief to consumers.<\/p>\n
As has been reported, the Indonesian Cement Association, in a
\nmeeting with the Director General of Basic Chemical Industries
\nthe other day, promised that producers will increase their output
\nto meet the increased demand. To bolster their resolve they
\nreportedly plan to import 320,000 tons of clinker -- a substance
\nused in the production of cement -- during the second half of
\nthis year. They even said they were willing to import cement if
\ntheir increased output failed to meet the demand.<\/p>\n
Cement prices are reported to have risen to levels far above
\nlocal reference prices in a number of areas, particularly in
\nJava. But while serious shortages like this always make the news,
\nthe problem is actually not a new one.<\/p>\n
Shortages in cement supplies occur almost every year. Usually,
\nreports of shortages are followed by a dialog between the
\ngovernment and cement producers, who usually propose an increase
\nin local reference prices. And often their demand is met.<\/p>\n
Price references are regarded as necessary by the government
\nbecause cement is a strategic product, needed by almost every
\nfamily in the country. As far as the producer is concerned, this
\nreference price level is determined on the basis of production
\ncosts and deliveries, plus profit margin. On the consumers' side,
\nof course, prices must be kept low enough so the public can
\nafford to buy the commodity.<\/p>\n
At present, the country's nine cement factories have a total
\nproduction capacity of 20.1 million tons. The market demand
\nreached some 19 million tons last year, but is expected to be
\naround 20 million tons this year and to continue to rise in the
\ncoming years. This means that, at present, the capacity is almost
\nat the same level as demand.<\/p>\n
Cement is a product that cannot be stored for very long.
\nProduction therefore has to be carefully calculated so that it
\nwill not exceed demand by too much. On the other hand it must
\nalso not fall short of the need.<\/p>\n
The demand for cement, the country's main construction
\nmaterial, usually goes up dramatically during the dry season when
\nbuilders try to take advantage of absence of rain. The rainy
\nseason usually brings a sharp decline in demand.<\/p>\n
The government has reportedly licensed the construction of 20
\nnew cement plants with a combined capacity of 32.2 million tons
\nand at a total investment of US$4.7 billion. Apparently, however,
\nthe sponsors have kept delaying construction of their projects.
\nThe obvious question is, why?<\/p>\n
Clearly, for the government, the problem is a rather delicate
\none. On the one hand, the authorities are not likely to eliminate
\nthe reference price system because consumers make up the majority
\nof the population and should be protected. On the other hand, the
\ngovernment must create an environment that is conducive for
\ninvestments in this particular sector.<\/p>\n
Offering an attractive environment is important because the
\ncountry needs a production capacity that is well above the levels
\nof consumption. This excess capacity will give producers the
\nnecessary leeway to increase output whenever called for. During
\nseasons of lower demand, the surplus output can be exported.<\/p>\n
The apparent reluctance on the part of investors to carry out
\ntheir already licensed projects could be an indication that, from
\nthe producers' point of view, the present reference price level
\nneeds revising. But whether or not the government can do this
\ndepends, of course, on the fair balancing of production costs
\nversus consumer needs.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/a-recurring-quandary-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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