Producers to ease cement shortage

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)