Producers to ease cement shortage

JAKARTA (JP): Cement producers yesterday pledged to increase supplies to ease domestic shortages, but proposed that the government increase local reference prices to encourage new investments to expand production capacity.

Soepardjo, an executive of the Indonesian Cement Association (ASI), told The Jakarta Post yesterday that in the short term, producers are ready to increase production with the support of imported clinker, a material used for cement production.

Director General of Basic Chemical Industries Sujata said the government has instructed cement producers to boost production in order to meet increasing demand caused by industrial plant and high rise building construction.

Cement prices are determined by the government through the introduction of local price references. Price levels are generally higher in areas located far from cement producers, which are assigned to supply certain areas.

Sujata acknowledged that prices have increased particularly in Java, where demand increased substantially to 1.29 million tons in June, up from 999,833 tons the same month a year ago.

Utilization in Java accounts for almost 70 percent of the country's total cement consumption.

Imports

The cement association said that a number of its members, including PT Indocement Tunggal Prakarsa, PT Semen Nusantara, PT Semen Tonasa, PT Semen Cibinong and PT Semen Kupang will import a total of 320,000 tons of clinker in the second semester of this year to support their increased production.

Soepardjo said the association's members will import cement if the increased production still fails to meet demand.

Increases in both demand and prices run counter to the government's guarantee earlier this year that prices, which shot up in the middle of last year, would not increase again this year because the country's nine producers would substantially raise output.

Minister of Industry Tunky Ariwibowo said the country's cement production, which rose from 17.38 million tons in 1992 to 19 million tons last year, would further increase to 21.3 million tons this year.

Analysts said that price increases, which occur annually, are apparently engineered by producers who allegedly collaborate with distributors because demand is actually lower than production.

The country's demand, for example, actually reached only 17.8 million tons last year, far lower than the 19 million tons produced, they said.

Soepardjo said yesterday that price increases are an annual problem which can be overcome by expanding production capacity.

He said investors will not be interested in building new cement plants if prices continue to be set by the government.

Producers also feel that the current levels of reference prices are too low and unrealistic as compared to production costs, he said.

The government, therefore, should increase the current reference prices if it still wants to maintain the pricing mechanism, he added.

The country's nine producers currently possess a total production capacity of 20.1 million tons per annum, which will increase to 23 million tons as soon as the expansion plant of PT Semen Gresik in East Java starts operating later this year.

The government, according to Tunky, has licensed the establishment of 20 new cement plants of a combined capacity of 32.2 million tons a year with a total investment of US$4.7 billion. (yns)