Cement Industry in Indonesia 2010

INDONESIAN COMMERCIAL NEWSLETTER

September 2010

CEMENT INDUSTRY STARTS EXPANSION

Backgrounds

The improvement in the country's economic condition in 2010 has boosted development of the country's cement industry. Work in a number of infrastructure and property projects, shelved earlier, has been resumed. The residential building projects have been the largest consumer of cement in the country. Many people build and renovate houses with the improvement in the people's welfare.

In 2009, cement industry suffered a setback. Demand for cement was weak amid the global slump followed the crisis late 2008. It was shown in the cement production that shrank 3.6% to 36.9 million tons in 2009 from 38.3 million tons in the previous year despite an increase in production capacity. The country's cement production capacity was 47.9 million tons per year in 2009, up 9% from 44 million tons in 2008. The cement industry, therefore, had large idle capacity in 2009.

In 2010, demand for cement grew fast and many factories have operated almost at full capacity. Many producers, therefore, plans expansion. Meanwhile, PT Semen Andalas has resumed operation in Aceh since September 2010, after being out of business when its factory was destroyed by tsunami that devastated Aceh late 2004. The operation of PT Andalas, which is owned by France's cement giant Lafarge brought the country's total production capacity to around 50.8 million tons in 2010..

The capacity expansion by cement industry is planned to keep pace with growing demand that follows the country's economic growth. In addition, replacement of old factories is needed as they are no longer efficient. It would not be easy for small capacity producers to compete in the market especially with the increase in production cost with the higher fuel cost. The prices of coal as the main fuel for cement factories have increased to follow the rise in the oil prices.

Small players like Semen Kupang, Semen Baturaja, and Semen Bosowa could not take full advantage of the rise in cement demand. There are a number of hurdles that keep them out of contention such as locations being tool far from potential markets - Java, Sumatra and Sulawesi and difficulty in transport.

The availability of energy is a vital factor in the development of cement industry. Modernization and modification of factories are made using energy saving machines and to use secondary energy.

The availability and prices of coal are among important factors determining plan for capacity expansion as fuel cost is a major element of production cost. A number of cement producers, planning capacity expansion have to carry out studies to ascertain that coal supply is well secured. The certainty of supply is important as high coal prices in international market may result in more coal exported causing shortage on the domestic market.

Types of cement produced

There are a number of types of cement produced in Indonesia. The main type is OPC (Ordinary Portland cement) or Portland Cement Type I which accounts for 80% of the country's total production. Another main type is composite cement. Other types are produced in small quantity.

Production capacity expands 9%

In the past several years, the country's cement production capacity has remained unchanged. Capacity expansion began only in 2002 for clinker - from 43,780,000 tons to 44,425,000 tons a year or an increase of 1.5% and for cement - to 47,490,000 tons from 47,140,000 or an increase of 0.7%.

However, in 2005 and 2006, the cement production capacity fell as one of the major producers PT. Semen Andalas stopped operation as its factory was destroyed by tsunami late 2004. In addition some old factories were out of function such as those of PT. Semen Padang with capacity of 100,000 tons/year of clinker and 200,000 tons/year of cement; PT. Semen Gresik with a capacity of 800,000 tons/year of clinker; PT. Semen Tonasa with a capacity of 60,000 tons/year of clinker; and PT. Holcim Indonesia with a capacity of 1 million tons/year of clinker and 1 million tons of cement per year.

According to ASI, until 2008, the country's cement production capacity remained unchanged at 44,890,000 tons per year, as there was no producers expanded their capacity or build new factories. In 2009, the country's installed capacity rose 9% to 47.9 million tons per year.

Capacity utilization was 76%. Based on production capacity, private cement companies are larger than state cement companies. Private companies account for 60% of the country's total production capacity with state companies for 40%.

In 2010, the country's production capacity is expected to increase by 2.9 million tons to 50.8 million tons per year. The additional capacity is contributed by five producers, which will invest around US$ 645.6 million for capacity expansion. A new cement mill with a capacity of 1.5 million tons of Indocement is already operational in Cirebon. A new factory with a capacity of 1.6 million tons is being built in Aceh by PT Semen Andalas to replace its old factory destroyed by Tsunami late 2004.

Producers

PT. Semen Gresik, Tbk (PT. SG)

PT. SG has three factories located in Tuban and Gresik, East Java with a total production capacity 8.5 million tons per year. PT. SG has two cement special ports in the two cities, one cement packaging plant in Ciwandan, Banten and 11 units of buffer warehouses in various areas Java and Bali.

On 15 September 1995, PT. SG took over both PT. Semen Padang (SP) and PT. Semen Tonasa (ST) and became its subsidiaries with 99.9% stake.

PT SP in Padang, West Sumatra, is strategically located to supply market in Sumatra. It is the largest supplier of cement for Sumatra. Part of its production is also sent to Java. It also exports part of its production. It has 6 units of packaging plant to support cement distribution in Padang, Medan, Banda Aceh, Batam, Jakarta and Banten. SP also have 14 units of buffer warehouses and cement special port in Teluk Bayur, and Ciwandan of Banten.

The types of cement produced by SP are Ordinary Portland Cement (OPC), Portland Pozzoloan Cement (PPC), Portland Composite Cement (PCC), Oil well Cement (OC) and Super Masonry Cement (SMC).

In 2009, cement production of SP totaled 5.4 million tons down 8.1% from 5.8 million tons in 2008. The decline was a result of major earthquake that rocked Padang in 2009.

PT Semen Tonasa (ST) in Pangkep, South Sulawesi has three factories producing the types of OPC and PPC. ST is the largest supplier of cement for eastern Indonesia including Sulawesi, Kalimantan and Nusa Tenggara. PT ST has 8 units of cement packaging plant in Makassar, Bitung, Samarinda, Palu, Banjarmasin, Ambon and Bali and 5 buffer warehouses. It also has special port to facilitate shipments of its production in Biringkassi.

Currently the SG group has a total production capacity of 19 million tons per year including 9 million tons of PT. Semen Gresik, 5.9 million tons of PT. Semen Padang and 4.1 million tons of PT. Semen Tonasa.

SGG has planned to build 2 new factories each with a capacity 2.5 million tons in Java and Sulawesi. The new factories are expected to come on line in 2012 bringing the production capacity of SGG to 23.9 million tons. Originally SGG planned to build 10 units of coal-fired power plant with a total capacity of 410 megawatts. Construction of the facilities is estimated to cost US$573 million to be operational in 2011. The facilities were to be built to supply power for the Tuban factories with a capacity of 2 x 65 MW; for the Indarung factories in West Sumatra 3 x 35 MW, for Tonasa factories in Sulawesi 1x35 MW, for new cement factories in Java 2x32MW and for a new cement factory in Sulawesi 2x35 MW).

However, later the company decided to build only two more urgent power plants with a total capacity of only 2x35 MW to cost US$ 114 million in Sulawesi. In 2009, PT. Semen Tonasa secured a loan of Rp 3.5 trillion from syndicate of state banks to build the power plants.

SG also plans to build 4 units of packing plant to cost around Rp600 billion internally financed. The plants will be built in Sorong of Papua, .Pontianak of West Kalimantan, East Kalimanatan and Banyuwangi of East Java to facilitate cement distribution.

The company also plans to build a cement plant in Papua if the market expands warrant investment in factory. In 2010, SG sets aside USS 402 million for capital expenditure. Part or US$ 264 million of the fund would be used to finance the construction of new cement factories . The company allocates US$ 1.26 billion for capital spending. For the 2008 - 2014 period.

The business lines of the SGG quite vary . In addition to cement production by PT. Semen Gresik Tbk, PT. Semen Padang and PT. Semen Tonasa; and cement packaging by PT. Industri Kemasan Semen Gresik, the group has business in industrial estate by PT. Kawasan Industri Gresik; limestone mining by PT. United Tractors Semen Gresik; steel fabrication, civil contracting service by PT. Swadaya Graha; general transport service, general trading, inter-island trade, business agency and good distribution under PT. Varia Usaha; and asbestos and building material production and casting industry by PT. Eternit Gresik.

Currently, PT. SG is 51.01% owned by the government 24.9% by Blue Valley Hodings, Pte and 24.09% by investing public.

PT Holcim Indonesia Tbk

PT. Holcim Indonesia Tbk (HI) was formerly known with the name of PT. Semen Cibinong. Holcim Ltd, Swiss-based cement giant, acquired 77.33% of PT. Semen Cibinong in 2001.The name was changed on 1 January 2006. HI has two factories - in Narogong and in Cilacap.

Holcim Ltd, the world largest cement producer, has interests in cement companies in 70 countries in the world.

In 2009, the cement production capacity of PT Holcim was 8.3 million tons. Its production that year was 7.2 million tons, with around 64% disposed of on the domestic market and the rest exported.

In October 2010, HI started construction of a new factory in Tuban, East Java, after being delayed in 2009 as a result of the global financial crisis. The new factory will have a production capacity of 1.7 million tons per year built with a cost of US$ 450 million.

PT. Indocement Tunggal Prakarsa, Tbk (PT. ITP)

PT. ITP was established by the Salim Group in 1985. In 2001, it was acquired by Heidelberg Cement Group, another world's cement giant from Germany. Heidelberger acquired 65.14% of ITP through subsidiary Kimmeridge Enterprise Pte. Ltd. In 2003, Kimmeridge Enterprise Pte. Ltd transferred the shares of PT. ITP to HC Indocement GmbH. In September 2006, HC Indocement GmbH was merged with Heidelberg Cement South-East Asia GmbH , which became the direct owner of PT. ITP.

ITP operates 9 cement factories in Citeureup, Bogor, the second largest cement factory complex in the world, and two units in Palimanan, Cirebon of West Java and one 1 unit in Tarjun, Kotabaru of South Kalimantan. ITP produces various types of cement including PCC, OPC, OWC and White Cement. ITP is the only producer of white cement in the country.

In 2009, ITP's production capacity for clinker is 15.6 million tons per year and its production capacity for cement is 17.1 million tons per year. Early 2010, a new cement plant of the company came on stream bringing its total production capacity to 18.6 million tons per year, making it the second largest cement maker after Semen Gresik Group in the country.

In 2007, ITP acquired PT. Gunung Tua Mandiri in Bogor, an aggregate producer with a capacity of 1.5 million tons per year and a reserve of 20 million tons. Later in 2009, PT. Mandiri Sejahtera Sentra a subsidiary of ITP, acquired an aggregate miner in Purwakarta, West Java . The aggregate company had a capacity of 0.5 million tons per year with a reserve of 95 million tons.

On 2009, ITP also acquired PT. Bahana Indonor, a shipping company having two vessels - the MV Tiga Roda, a cement carrier with a capacity of 10,000 DWT and the MV Quantum One, floating terminal with a capacity of 8,000 tons for loading cement in packages or in bulk.

Meanwhile, Heidelberg Cement AG transferred its entire shares in ITP to Birchwood Omnia Ltd in 2008. ITP, therefore, is 51% owned by Birchwood Omnia Ltd, 13.03% by PT. Mekar Perkasa and 35.97% by investing public.

PT Semen Andalas Indonesia

The old factory of PT. SA was destroyed by tsunami in 2004. In 2007, the company started to rebuild a new factory which came on line in 2010 with an annual production capacity of 3.1 million tons.

Meanwhile, the company imported cement from Malaysia supplied by a unit of Lafarge, which is the owner of PT. SA to be sold in the country especially in northern part of Sumatra , the market area for cement produced by the defunct factory.

In 2010, PT. SA began the operation of a new factory replacing the old one destroyed by tsunami.

PT Semen Bosowa Maros (PT. SBM)

Construction of the factory began in 1995 and started operation in April 1999. PT. SBM is owned by Aksa Mahmud. In 2007, PT. SBM finished the construction of a packaging plant in Samarinda, East Kalimantan. In 2009 , its clinker production capacity rose to 1.8 million tons per year from 1.71 million tons in the previous year. Its cement production capacity rose to 3 million tons per year from 1.8 million tons in the previous year. The cement production of PT. BSM is distributed mainly for eastern regions of Indonesia.

PT Semen Baturaja (PT. SB)

PT. SB is wholly owned by the government. His factory which is located in Kota Baturaja, South Sumatra has three cement packaging plants in Ogan Komering Ulu (OKU), Tarahan of Lampung, and Kertapati of Palembang.

In 2009, the cement production capacity of PT. SB was 1.2 million tons per year for clinker and 1.2 million tons of cement per year .

PT. SB produces Portland cement of type I using the brand of Semen Tiga Gajah. Its basic material is supplied form its limestone mines in that area. Ots marketing areas cover only southern Sumatra including Lampung, Jambi and Bengkulu and Banten in Java.

In 2013, SB plans to float 30% of its shares in an initial public offering hoping to raise Rp1 trillion in fresh funds. He fund is to be use to build a new factory South Sumatra with a production capacity of 1.5 million tons per year. With the factory, the company hopes to be able to maintain its 29% shares of its traditional markets. The new factory is estimated to need an investment of Rp 2.35 trillion including Rp 2.3 trillion in loan.

The company also plans to build a new cement mill with a capacity of 300,000 tons per year and investment of Rp 325 billion. The factory is to be build near the Baturaja unit to be operational in 2011.

Cement Production in 2009 totaled 36.9 million tons

The country's cement production has continued to scale from year to year to reach 38.3 million tons in 2008, up from 35 million tons in the previous year. The surge in production was boosted by strong demand from infrastructure and property projects.

However, in 2009, production fell 3.6% to 36.9 million tons as a result of the financial crisis that began late 2008. Many infrastructure and property projects were shelved. Banks thought twice before extending new credits amid the great uncertainty. Without banking support few large projects could be implemented.

Slump hit not only domestic market but also international market even the impact of the global; crisis was worse in international market. Indonesia has exported cement to various countries such as Sri Lanka, Morocco, Madagascar and Middle east countries. In Middle East Indonesia competes sharply against Thailand.

In 2010, the country's cement production is predicted to rise to 38.6 million tons. The increase followed the improvement of the country's economic condition. Many large infrastructure and property projects, shelved earlier, were rescheduled and built. ....

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