Economists confirm robust prediction for cement demand

Adianto P. Simamora, The Jakarta Post, Jakarta

Economists on Monday confirmed a prediction made by the cement industry association that domestic consumption would return to pre-crisis levels this year.

They also agreed that the robust demand would be driven mainly by the construction of new houses and renovations throughout the country.

Raden Pardede of the Danareksa Research Institute said that the rise in worker salaries and the banking sector's move to ease requirements on consumer loans had played a big part in boosting domestic cement consumption.

"There are many people who are now buying cement for the construction of residential houses and renovations after delaying works in the previous years," Raden told The Jakarta Post.

Muhammad Ikhsan of the University of Indonesia concurred, saying there was now a shift in investment among low-income families in the country.

"People in Jakarta and remote areas are now renovating their houses, this is a new investment activity among the lower-income level people."

He said that in villages, many people were renovating their houses after getting money from working overseas.

"The money from Indonesians working overseas has made a significant contribution on cement demand this year," Ikhsan said.

Overseas workers send home at least US$500 million annually.

The Indonesian Cement Association (ASI) said earlier that domestic cement consumption would reach a record high of 29 million metric tons this year, up from last year's 25.5 million tons.

The association did not say what the reasons were for the stronger demand, but industry players said that it would be mainly boosted by new housing projects.

ASI data shows that in the first six months of this year, domestic cement consumption reached 12.6 million tons.

It said that about 8 million tons were used in Java, 2.7 million tons in Sumatra and 717,309 tons in Sulawesi.

Domestic demand for cement has been in the doldrums since the economic crisis hit the country in 1997. Demand dropped by 31 percent to 19 million tons in 1998 from 27 million tons in 1997.

The property sector, which had fueled demand for cement before 1997, was badly effected by the crisis, forcing many developers out of business.

Meanwhile, the chief economist of state-owned Bank Mandiri, Martin Panggabean, said that although domestic cement consumption would increase this year, he doubted the figure would reach 29 million tons.

He said that the consumption level would probably only increase to around 27 million tons as banks had not yet really started channeling money in a big way to the property sector.