Domestic cement demand in Indonesia is expected to grow strongly in the future, largely driven by infrastructure developments and an improved economic outlook. However, the current high margins enjoyed by local producers look set to come under pressure as new capacity comes on-stream and competition heats up. By Isnaptura Iskandar, Maybank Kim Eng Securities, Indonesia.
Indonesia’s peaceful 2014 election led to a new president, Joko Widodo, being voted in – a result which is helping the economy move in the right direction and transform it into better shape. This is partly on the back of the new ‘Jokowi’ administration’s decision to reallocate fuel subsidies to more production sectors. In the past Indonesia used to spend over IDR200tn (~US$15bn) annually in fuel subsidies, most of which was enjoyed by the middle-class. Based on the 2015 state budget, the new administration has reduced the subsidies for fuels significantly to IDR65tn (~US$5bn) and allocated subsidies for infrastructure and healthcare.
