New cement prices unlikely to draw investors
New cement prices unlikely to draw investors
JAKARTA (JP): Minister of Trade Satrio B. Joedono said yesterday that the recent 40 percent increase in cement reference prices would not attract new entrants to the cement industry.
However, the new prices would encourage existing cement producers to make new investments for the expansion of their production capacities to meet increasing demand on the domestic market, he said after meeting with visiting South African ministers.
He said the increase in cement prices, which was announced late last month, was too small because it was based on the old reference prices, which were introduced in early 1993.
When the new reference prices were introduced late last month, the market prices of cement were almost the same as the new reference prices, at an average of Rp 9,600 (US$4.32) per 40- kilogram sack.
"If we want to attract newcomers to the cement industry, the increase should be greater than 40 percent," Joedono said, adding that the old reference prices, averaging at Rp 6,555 per 40- kilogram sack, were not attractive for investment even for the existing cement producers.
He suggested that new domestic investors in the cement industry form joint ventures with foreign partners so that they would be better able to compete with the existing cement producers.
The minister acknowledged that the existing producers would get most of the benefit from the new reference prices because, even with the old reference prices, they were still able to make profits.
"But the profit was only about nine or 10 percent, and it would be not enough for reinvestment," Joedono said, adding that with the new reference prices, the rate of return on equity in the cement sector was expected to reach 20 percent, which is normal for the sector.
He also acknowledged that the existing cement producers, with their distribution arms, would gain even tighter control over the market because it would be difficult for newcomers to challenge them.
Dilemma
"I know it's a dilemma... But, we have to take this step because we want to solve once and for all the annual cement problems, which are rooted in the imbalance between supply and demand. No country can rely on imported cement," the minister said.
Indonesia plans to import 2.5 million tons of cement and clinker -- a substance used in the production of cement -- this year to offset the difference between supply and demand.
With the new cement prices, Joedono said, the existing cement producers were expected to expand their production capacities by building new cement factories so that domestic supply would be able to satisfy demand by 1997.
He emphasized that the 40 percent increase was not based on production costs but on international prices; to attract more foreign investors to pour more money in the cement sector.
According to Coordinating Minister of Trade and Industry Hartarto, a 40-kilogram sack of cement is sold at an equivalent of some Rp 11,500 in Singapore, Rp 12,000 in Brunei, Rp 9,200 in the Philippines, Rp 8,500 in Malaysia, Rp 9,600 in South Korea, Rp 8,700 in India and Rp 13,795 in Japan.
"With the new cement prices, we also want to make shares in the cement sector more attractive on the capital market so that the existing producers can generate more funds from stock markets for reinvestment in the cement industry," Joedono said.
Currently, three cement companies -- PT Indocement Tunggal Prakarsa, PT Semen Cibinong and state-owned PT Semen Gresik -- have been listed on the Jakarta Stock Exchange.
Semen Gresik, which is expected to acquire two other state- owned cement companies, PT Semen Padang and PT Semen Tonasa, plans to float shares on an international stock exchange to generate fresh funds to finance its expansion programs.
"We expect that with the new reference prices which are more attractive for investors in stock markets, there will be more cement companies going public to raise cheap funds for their expansion programs," Joedono said. (rid)