Indonesia: electricity price rise alarms cement producers

Surging electricity costs resulting from subsidy withdrawal by the Indonesian government have been cited as the reason for Holcim Indonesia to bring forward plans to increase cement prices this year and for PT Semen Indonesia to consider doing the same. The government began raising electricity costs on 1 May 2014 by either 38.9 per cent or 64.7 per cent, depending on businesses’ power consumption.

Eamon Ginley, Holcim Indonesia president director, said that the cement-price increase was inevitable as the surge in the electricity prices would cause a significant increase in the company’s operating costs. According to Ginley, the electricity rate hike would increase the company’s total operating costs by up to five per cent. However, he did not elaborate on when or by how much the company would increase its product prices.

“The price of [electricity] will progressively increase between May and July. This will have a cost implication throughout the year of between 3 and 5 per cent,” Ginley said. The increase will be fairly significant for Holcim, as it is among the industries that will have to pay the upper rate of 64.7 per cent for its electricity.

Holcim Indonesia recorded a 9.11 per cent increase in revenue to IDR2.36trn during the first three months of 2014, compared to IDR2.16trn during the same period last year. Holcim Indonesia’s net income plunged by 29.5 per cent to IDR952bn last year from the IDR1.35trn it earned in 2012, impacted by market oversupply and the rupiah depreciation against the US dollar.

Meanwhile, Indonesia¹s largest cement producer, PT Semen Indonesia, is also deciding whether to increase its product prices by three to four per cent this year, following the government¹s decision to increase the price of industrial electricity.

"Other players in this industry will probably make the same move," said Dwi Soetjipto, PT Semen Indonesia's president director.

State-run PT Semen Indonesia also aims to start construction on its 3Mta Rembang plant in June at an investment cost of IDR3.72trn. Dwi Soetjipto said the new plant was expected to help the company boost its total cement production to 39.3Mt by 2016, and to 40.8Mt by 2017. Currently, Semen Indonesia produces 31.8Mta. A company statement also said that the firm had sold 6.2Mta of cement in the first quarter of this year, up by around 3.5 per cent compared to 5.9Mt sold during the same period last year.
 
PT Semen Indonesia had previously estimated that the country's cement industry would grow by six per cent this year, but data shows that due to the economic slowdown, the industry may only grow by 3.7 per cent in 2014. "There was also a slowdown in construction projects due to floods and the election, as well as distribution problems due to bad weather," he said, adding that he expected improved conditions after the election season had ended, allowing the cement industry to grow this year by 4.5 per cent.

In the first quarter of this year, PT Semen Indonesia recorded a 11.43 per cent increase in revenue from a year ago to IDR6.17trn (US$530.62m). Its net profits rose 5.3 per cent to IDR1.3trn, while its sales volume went up by 3.5 per cent to 6.2Mt.