Semen Gresik forecasts cement shortage in 2007
Rendi A. Witular, The Jakarta Post, Jakarta
The country's largest cement producer, PT Semen Gresik (SG), has projected a shortfall in cement supply in 2007 due to the high demand from government-driven infrastructure projects.
To anticipate the shortage, SG is planning to construct new plants, either in Sukabumi, West Java, or near Pacitan, East Java, with an installed capacity of between 2.5 million and three million tons per year.
"We are forecasting that there will be a shortage of cement within the next two years amid rising demand from infrastructure projects," SG President Director Satrio said during a press gathering.
The state-owned company's forecast of a cement shortage in 2007 is earlier than it's previous prediction of 2010. The firm did not include in its original forecast the expected increased demand for cement arising out of the major infrastructure projects offered by the government to local and overseas investors at January's Infrastructure Summit.
The government has estimated that investment in infrastructure -- including roads, ports and seaports -- will surpass US$150 billion in the next five years, with the bulk of the money coming from the private sector.
Satrio said that cement producers would be able to keep up with the demand for the immediate future as most of the projects were unlikely to start this year or next due to regulatory constraints.
"Several infrastructure projects, although the number is not so significant, will start this year and next year. The cement industry will feel the pressure from the projects in the following years," he said.
At present, the industry's installed capacity stands at 45 million tons per year, with cement expected to reach some 33 million tons this year, up from 30.5 million tons last year.
"This year's cement demand will be equally divided between retail and project development, but most will still come from the property sector," said Satrio, adding that this year's forecast excluded the proposed infrastructure projects.
SG production now accounts for some 44 percent of the country's cement supply. The company has subsidiaries PT Semen Padang in West Sumatra and PT Semen Tonasa in South Sulawesi.
At present, SG alone is utilizing all of its installed capacity of some 6.9 million tons. However, with some modification of its plants, the company expects to be able to produce up to 7.5 million tons this year.
Meanwhile, Semen Padang and Semen Tonasa are utilizing between 85 percent and 90 percent of their installed capacities, which stand at 5.24 million and 3.48 million tons respectively.
"The increase in our production this year will mostly come from our two subsidiaries," said Satrio.
Regarding the plan to construct new plants, Satrio said it was still subject to shareholder approval. The shareholders would hold a meeting in June to discuss the project.
Satrio said the new plants would need an investment of some US$350 million and would take between three and four years to be built before coming onstream
About 30 percent of the investment would come from the firm's cash reserves, while the remaining 70 percent would come from external funds in the form of bank loans, or the issuance of bonds or other securities.