Cement makers hurt by weak demand

Cement makers hurt by weak demand

Rendi A. Witular, The Jakarta Post, Jakarta

The country's cement industry is expected to remain in the
doldrums this year due to various factors such as weak sales
growth, excess production capacity, and the rising cost of
energy.

Chairman of the Indonesian Cement Producers Association (ASI)
Soepardjo said that sales volume would likely grow by only 3
percent this year, mostly driven by governmental infrastructure
projects.

"We cannot expect higher growth because consumers' purchasing
power remains low," Soepardjo told lawmakers during a hearing
with the House of Representatives Commission V for industry and
trade on Tuesday.

The growing number of construction projects, such as apartment
blocks and shop/houses in several big cities were also expected
to slightly lift the growth, he said.

Domestic cement sales grew by only 1 percent last year to 27.5
million tons from 27.2 million in 2002.

President of state-owned cement producer PT Semen Gresik (SG)
Satrio concurred.

He said the slow growth was attributable to the slow pace of
recovery in the property sector, as well as slow progress in
governmental development projects.

He explained that with the current installed production
capacity, the ideal sales growth should be around 8-10 percent,
or twice the country's economic growth rate, in order for the
industry to be feasible.

SG is the country's largest cement producer.

According to ASI, the industry has only utilized 63 percent of
its installed production capacity, down from 65.5 percent in
2001, meaning that the industry is burdened with the extra cost
of maintaining idle machines.

Soepardjo said the industry was currently reluctant to boost
export because of the recent hike in shipping costs, which soared
by more than 40 percent.

During the hearing, the association also delivered its
concerns over the shortfall in domestic coal supply, as local
coal producers preferred to export their coal rather than sell it
at home because of the higher price abroad.

The association said that limited supply had caused the price
of coal to increase, thus burdening the production costs of
cement companies. Coal accounts for 20 percent of total
production costs.

Chief financial officer of the country's second-largest cement
producer PT Indocement Tunggal Prakarsa Thomas Kern said that the
increase in the price of coal would have a negative impact on the
industry as this reduced its profitability.

"There is an increasing demand for Indonesian coal abroad, and
prices are going up... ," said Kern.

However, Kern said that Indocement would not be immediately
hit by the increase because it had signed a long-term supply
contract with several coal producers.

A stronger growth in the cement industry is considered crucial
for the economy, not only because the industry employs many
workers, but also because this would be seen as a clear sign that
the economy was moving toward recovery.