Semen Padang to storm markets

Semen Padang to storm markets

Rendi A. Witular, The Jakarta Post, Padang, West Sumatra

Cement producer PT Semen Padang, a subsidiary of publicly listed
cement giant PT Semen Gresik, is planning to expand its business
in Jakarta and Banten by setting up a new packaging plant as well
as allocating most of its cement exports to this market.

Semen Padang president director Endang Irzal said on Wednesday
that the company would allocate around Rp 230 billion (US$23.7
million) in capital expenditure next year, which would be used
for building the new plant and for upgrading its cement
production capacity.

"We will start building the facility in Serang early next
year. The plant will be operational in mid 2007. This is part of
our efforts to boost our sales in Jakarta and Banten, which are
not our traditional markets," said Endang to a group of capital
market analysts.

The expansion into the region is also driven by the fact that
cement demand in Sumatra next year is projected to only grow 4
percent, far lower than that of Java, which is estimated to reach
between 14 percent and 16 percent.

Endang said about 12 million tons of cement, or around 30
percent of national demand, would be sold in the Greater Jakarta
area this year alone, making it the most lucrative market in the
country and with a relatively higher profit margin.

At present, cement demand in these areas is supplied by Semen
Gresik's smaller rival PT Semen Cibinong, which is controlled by
Swiss-based cement giant Holchim Ltd., and PT Indocement Tunggal
Prakarsa, which is owned by German-based Heidelberg Cement Group.

"Our entry into these areas is because we are more feasible
than Semen Gresik in penetrating them due to geographical
reasons. We expect to be able to compete with Semen Cibinong and
Indocement soon," said Endang.

After the entry, cement products from state-owned Semen Gresik
will be withdrawn from the areas as part of the group's synergy
strategy in expanding its business. In the future, Semen Gresik
will focus its sales only in Central Java, East Java, and parts
of Kalimantan and Bali.

Semen Padang will focus more on Sumatra, Banten, Jakarta and
parts of Kalimantan. Semen Gresik's other subsidiary, PT Semen
Tonasa, will focus on selling its cement in Sulawesi and eastern
parts of Indonesia.

Cement demand in Java will be equally driven next year by
projects and household use, while in Sumatra, 90 percent of the
demand will driven by household needs and 10 percent by projects.

Semen Padang, which controls 48 percent of the cement market
in Sumatra, is also planning to allocate 1.23 million tons of its
exported cement next year to the domestic market as an initial
move to gain larger market share in Jakarta and Banten.

The company estimates next year's sales volume will reach 5.31
million tons, higher than this year's projection of 5.09 million
tons. It also forecasts sales will reach Rp 2.73 trillion with a
net profit of Rp 212 billion.