Domestic cement demand down in 2005

Domestic cement demand down in 2005

Urip Hudiono, The Jakarta Post/Jakarta

Inflationary pressures from higher energy prices and a weakening
rupiah, in addition to a delay in major infrastructure projects,
may result in this year's growth in domestic cement demand being
far below last year's 8 percent, a major cement maker estimates.

PT Indocement Tunggal Prakarsa said higher energy prices would
likely force the company to raise its prices to cope with
increasing production costs.

Indocement finance director Christian Kartawijaya told
reporters on Thursday that the country's cement industry and
construction activities would likely experience a slowdown due to
the weakening rupiah -- now standing at some Rp 9,800 a dollar
compared to last year's close of Rp 9,290 -- and high interest
rates.

"Some 65 percent of our production costs are directly or
indirectly related to the dollar," he said.

Christian said the recent fuel price hikes would further hurt
the industry, as the multiplier effects would eventually affect
their production costs.

"The planned rolling out of major infrastructure projects for
this year has also been delayed," he said.

Global coal prices rose by 33 percent earlier this year while
industrial diesel has more than doubled since March. Marine fuel
oil had also increased by 34 percent.

State power firm PT Perusahaan Listrik Negara (PLN) also
announced that it would raise its electricity charges during peak
hours for industrial undertakings with power utilization capacities
of more than 14 kilovolt-amperes (kVA) starting this month.

"In light of this situation, we see the growth in cement
demand here being well below last year's 8 percent," he said. "In
addition, our performance in the remainder of the year will
likely not be as good as during the first quarter."

The country's second largest cement producer, which is
majority-owned by German cement giant HeidelbergCement, sold 5.84
million tons in the first half of this year, as compared to 5.69
million tons in the same period last year, booking a net profit
of Rp 307.6 billion (US$31.4 million).

Indocement president director Daniel Lavalle said the recent
rise in energy prices would have a major impact on the price of
cement.

Although Indocement had no problem with the government's
decision to reduce fuel subsidies through price adjustments
considering that other countries actually imposed energy taxes,
Lavalle however hoped for a more planned and focused policy.

"The main problem here is that the recent increase in fuel
prices came as something of a surprise to the industry, making us
unprepared and hurting our businesses," he said.

"With this, there is no other option for us than to increase
prices," he said, though stressing that Indocement would continue
to seek ways to make its production more efficient.

Indocement had previously said it would increase prices by
some 15 percent this year.

The firm's technical director, Kuky Permana, said that among
its cost-cutting strategies was converting its coal-fired
generators to natural gas. "Natural gas could work out at some 40
percent cheaper than coal," he said.

Indocement owns three plants located in Citeureup and Cirebon,
both in West Java, and Tarjun, South Kalimantan, that produce
some 80 percent of its own electricity needs from coal and
diesel.