Semen Padang to build new plant

Semen Padang to build new plant

Rendi A. Witular, The Jakarta Post, Jakarta

PT Semen Padang, the West Sumatra unit of the country's
largest cement maker PT Semen Gresik, plans to construct a new
cement plant, starting next year, to anticipate future rising
demand.

In its recent report to House of Representatives Commission V
for trade and industry, the state-owned company said that the
plant was estimated to cost US$345 million, with a construction
period of around 36 months.

Semen Padang said that the new plant, known as the "Indarung
VI" project, would have an installed capacity of 2.3 million tons
per year. Currently, the company's installed capacity is 5.24
million tons annually.

Next year, the company will start carrying out an
environmental impact assessment for the plan, designing the
machinery and preparing infrastructure and the mining site.

However, it remains unclear how the company will finance the
project.

Semen Padang said the reason for the construction of the new
plant was to anticipate soaring demand, both at home and in the
export market, starting in 2009 or 2010.

The company said that assuming the local economy would grow at
around 8 percent per year during the period, cement demand at
home was projected to soar to 46.5 million tons per year compared
with the current 27.5 million tons, while exports would jump to
12 million tons to 15 million tons.

It said that the existing capacity of local cement producers
would not be able to meet such high demand.

Semen Padang produced 4.55 million tons of cement last year,
down from 5.01 million tons in 2002.

In its unaudited financial report, the company said that last
year it booked a 4 percent increase in sales to Rp 1.58 trillion
(US$188 million) from Rp 1.52 trillion in 2002. The company's
operating profit jumped to Rp 134 billion from Rp 121 billion,
with a net profit of Rp 66.9 billion, up from Rp 39.8 billion.

The feasibility of Semen Padang's plan, however, is in
question, since other cement producers have currently decided not
to build a new plant, as local demand remains low and exports are
considered not to be lucrative due to high shipping costs.

According to the Indonesian Cement Association (ASI), the
industry has utilized only 63 percent of its installed production
capacity, down from 65.5 percent in 2001, meaning that the
industry is burdened with the extra cost of maintaining idle
machinery.

The country's total domestic cement sales grew by only 1
percent last year to 27.5 million tons from 27.2 million in 2002,
due to the slow pace of recovery in the property sector, as well
as slow progress in government development projects.

The producers said that with current installed production
capacity, ideal sales growth should be around 8 percent to 10
percent, or twice the country's economic growth rate, in order
for the industry to be feasible.