Indocement says it will focus on local market

JAKARTA (JP): Publicly listed cement company PT Indocement Tunggal Prakarsa said on Tuesday it would focus on serving the local market, citing growing domestic demand and unfavorable cement prices in the international market.

Indocement president Daniel Lavalle said the company sought to expand the domestic component of its gross cement sales. Last year, the local market accounted for 80 percent of Indocement's sales of 10.3 million metric tons.

Lavalle said that, although the entry of German-based cement producer Heidelberger Zement AG into Indocement was expected to boost its export share, the plan was now untimely.

"Heidelberger still concentrates on the domestic market," he said during a hearing with the House of Representatives' Commission V, which oversees industry and trade affairs.

Heidelberger entered Indocement under a debt restructuring deal that raised its stake in the company to 61.7 percent.

He said growing demand in the local market would also boost Indocement's total sales.

Higher sales projections would allow the company to increase the utilization rate of its production capacity, he added.

Indocement has improved its output to 70 percent of capacity in the first six months of this year, as compared to 66 percent in 1999, he said.

At full capacity, the company can produce 11.8 million tons, making it the second-largest cement producer in Indonesia after state-owned PT Semen Gresik.

Semen Gresik is also focusing on sales in the local market, citing the same reasons as Indocement.

Experts said that the cement industry benefits the most from supplying its nearest market. Since cement is a bulky product, transportation costs increase significantly if the destination market is further away.

Despite this principle, multinational cement producers went into an acquisition binge during the mid-nineties.

The move has consolidated the global cement industry from which major players emerged, including Heidelberger, Swiss based Holcim Ltd and Mexican based Cemex.

In Indonesia, Cemex is still battling to win a majority shareholding in Semen Gresik, whereas Holcim is close to controlling publicly listed PT Semen Cibinong.

Critics in Indonesia argue that foreign control of the local industry could expose local cement to international market conditions.

Should export prices pick up, they would drive the local cement supply out, thus causing prices in the local market to soar.

During the height of economic development in the mid-nineties, Indonesia suffered from a sharp increase in cement prices due to undersupply.

In response, local cement companies embarked on investment expansion to boost output in anticipation of higher demand. However, the 1997 economic crisis, which virtually brought the construction industry to a standstill, has now left the cement industry with enormous excess capacity.(05/bkm)