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After the entry, cement products from state-owned Semen Gresik will be withdrawn from the areas as part of the group's synergy strategy in expanding its business.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.