Cement demand to grow by over 10% per year

Cement demand to grow by over 10% per year

JAKARTA (JP): Cement demand in Indonesia is expected to grow
by more than 10 percent per annum up to the end of the decade,
reflecting the country's strong economic growth and the booming
construction sector, according to investment bank Lehman
Brothers.

"Based on our Asian Economics team forecast that real GDP for
Indonesia will grow at an average of seven percent over the next
five years, we estimate domestic demand for cement to grow by 15
percent in 1995 and by an average of 10.5 percent a year in 1996-
2000," the bank said.

In a report made available to The Jakarta Post yesterday,
Lehman Brothers predicts that the demand will exceed supply,
given that most domestic cement plants already operating at full
capacity.

This year alone, the supply shortage is estimated at 1.2
million tons and next year it is expected to reach 2.9 million
tons.

The supply shortage has prompted all nine cement producers of
the country to prepare aggressive expansion plans to capture the
growing demand.

Indocement, currently the largest cement producer, says it
will increase its capacity by six million tons per year.

Semen Gresik, the second-largest producer, plans to increase
its capacity to 4.6 million tons per year from its two plants in
Tuban, East Java. Including its recently-acquired plants -- Semen
Padang, in Sumatra, and Semen Tonasa, in Sulawesi -- Gresik is
set to overtake Indocement to become the largest producer in
1997.

Semen Cibinong, Indonesia's third-largest cement producer,
plans to increase capacity to 5.2 million tons per year.

Indocement, Semen Gresik and Semen Cibinong, which are listed
on the Jakarta Stock Exchange, account for 74 percent of the
Indonesia's total cement production. Their production facilities
are in Java, which is the largest consumer of cement of the
country -- accounting for approximately 69 percent of the three
companies' total production.

All of Indonesia's cement producers are likely to benefit from
further increases in cement prices resulting from the continuing
supply shortfall.

Of the three listed cement companies, Lehman Brothers believes
that Indocement offers the best value for investors. It rated the
company a "1-buy".

Cement consumption in Indonesia mirrors the level of economic
activity. Domestic cement consumption has risen from 11.4 million
tons per year in 1989 to 21.5 million tons in 1994.

This was due to a flurry of activity in the housing
construction sector which was partly encouraged by the
government's relaxation of a tight credit policy in the latter
half of 1992. Only in 1991, when interest rates peaked at above
25 percent, that cement demand slumped.

In spite of the increasing demand, however, on a per-capita
basis Indonesia remains one of the lowest cement consumers in
Southeast Asia. According to the ASEAN Cement Federation, in 1994
Indonesia consumed about 113 kilograms of cement per capita,
compared with Singapore's 1,156 kg, Malaysia's 512 kg, Thailand's
493 kg and the Philippines' 140 kg.

According to Lehman Brothers, this indicates that there is
great potential for cement consumption growth in Indonesia,
particularly as the country moves into the next stage of
industrialization.

"Given a strong estimated economic growth of seven percent,
and its commitment to fulfilling its vast housing needs and
infrastructure development plans, we are projecting per capita
cement consumption to increase to 264 kg by the end of the
decade," said the report. (13)