Cement industry to fully revive next year: Semen Gresik CEO<\/p>\n
State-owned firm, PT Semen Gresik, the country's largest
\nintegrated cement producer, has projected that the cement
\nindustry will fully recover next year on the back of robust
\ndemand for property and an increase in infrastructure projects
\nfunded by the government.<\/p>\n
The East Java-based company has a total installed capacity of
\n17.2 million tons at present, with 5.5 million tons and 3.5
\nmillion tons derived respectively from its subsidiaries PT Semen
\nPadang in West Sumatra and PT Semen Tonasa in South Sulawesi.<\/p>\n
Semen Gresik's president director, Satriyo, shared his views
\nwith The Jakarta Post's Rendi A. Witular and several other
\nreporters in a recent interview in Gresik about the domestic
\ncement industry. The following are excerpts from the interview.<\/p>\n
How do you see cement demand next year?<\/p>\n
Based on available statistics from government agencies and
\nfrom the company, local cement demand is expected to grow by
\nbetween 8 percent and 10 percent next year. But based on my own
\nanalysis, growth in demand will probably be higher at 12 percent
\nnext year.<\/p>\n
Cement companies are set to face rising demand earlier than
\nexpected next year. We had forecast earlier that demand would not
\nbe so strong until 2009, but figures for the first semester of
\nthis year indicate that next year will be robust.<\/p>\n
The economy is projected to grow faster at 5.4 percent
\n(compared to 4.8 percent expected for this year), amid continuing
\nstrong domestic consumption. Moreover, what amazes me is that
\nthere are is an over-liquidity of funds being held by individuals
\nand banks at present, which should further boost demand for
\nproperty next year, including property purchased for investment
\npurposes.<\/p>\n
For example, the houses offered by developers during recent
\nproperty exhibitions in Surabaya have always been sold out. Based
\non that, East Java alone will contribute significant demand for
\ncement.<\/p>\n
I expect cement demand from private sector projects will be
\nhigher than that from government projects. There will be an
\nincrease in the number of projects funded by the government next
\nyear, but the amount will not surpass the projects funded by the
\nprivate sector. Large government projects will include the 1,000
\nkilometers of toll roads from Merak in Banten to Banyuwangi in
\nEast Java. Irrigation and port development projects are also in
\nthe pipeline.<\/p>\n
What obstacles could prevent cement companies from taking
\nadvantage of the higher demand?<\/p>\n
Transportation problems are our major concern. Every year,
\nthere are at least 350,000 new cars coming onto the roads despite
\nthe network's limited capacity. This will create havoc for our
\ndistribution system. Due to the limitations, we predict that the
\ngovernment (central and provincial) will put our trucks at the
\nend of their list of priorities after private vehicles, and
\nvehicles transporting basic staples, energy products and
\nfertilizers.<\/p>\n
Such a situation may be expected to raise our cost of sales
\nand hamper us from increasing sales.<\/p>\n
This is a situation that cement producers cannot avoid or get
\naround. If it is simply a matter of increasing coal prices, we
\ncan still find a solution by modifying our machines. But for the
\nroads, we have to rely entirely on the government.<\/p>\n
Some say that we should use the railways instead. But it is
\ntoo risky. The railway operator cannot even transport people
\nsafely and on time to their destinations. By sea? It is too
\nexpensive and does not afford access to inland areas.<\/p>\n
How do you forecast profit and sales for this year?<\/p>\n
Our target will be at least similar to last year's. Although
\nwe recorded a significant increase in the first half of this year
\nagainst the same period last year, we remain cautious over the
\nrecent hikes in coal and oil prices as these will drive
\nproduction costs higher.<\/p>\n
Energy costs account for around 45 percent of our total
\nproduction costs. The rise in the price of oil and coal will cut
\nour gross (profit) margin profit by between 5 percent and 10
\npercent. Currently, our gross margin is around 30 percent. We are
\ntrying o maintain that margin until the end of this year by
\ncontrolling certain variables in our production costs and
\nprocesses.<\/p>\n
One of the ways in which we are attempting to cope with the
\nproblem is to modify our machines so that they can be fueled with
\nlow-calorie coal, which is available abundantly in Kalimantan at
\na lower cost. High-calorie coal, which is more expensive, is now
\nallocated for export. The modification of our machines so that
\nthey can burn low-calorie coal will not undermine the quality of
\nour cement.<\/p>\n
Other way is to boost efficiency in our operations.<\/p>\n
There will, of course, be a cut in our margins this year as a
\nresult of rising energy costs. But the amount will not exceed 5
\npercent -- maybe 1 percent or 2 percent.<\/p>\n
Any plans to raise cement prices to cope with higher production
\ncosts?<\/p>\n
Not at this moment. But we are still looking at the
\npossibility of doing so in the second half of this year,
\ndepending on market demand. If there is a strong demand, we will
\nnot raise our prices. In the first semester of this year, demand
\nfor cement grew by between 9 percent and 10 percent. We will see
\nwhether demand for this semester will exceed the figure for the
\nfirst semester.<\/p>\n
There are several variables that we can modify so as to avoid
\nprice increase, such as increasing our volume and wisely managing
\nour production costs.<\/p>\n
We will try not to spoil the growth in the property and
\nconstruction sectors by raising cement prices. We fear that by
\nraising our prices, demand for property will be lower as it gets
\nmore expensive.<\/p>\n
How is the progress of the forensic audit on Semen Padang? (The
\naudit is being carried out to look into possible embezzlement of
\nassets at the West Sumatra firm when it was managed by its
\nprevious, rebellious management)<\/p>\n
The results of the forensic audit will impact the general
\naudit. Our auditor is conservative enough to put aside some
\nprovision to cover losses in Semen Padang. For example, in 2003
\nSemen Padang recorded a profit of Rp 38 billion (US$4.2 million),
\nbut after the audit it recorded a loss of Rp 32 billion. We have
\npromised our shareholders to complete the audit in September.<\/p>",
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