Semen Indonesia lowers prices amid increased competition, weaker demand

Semen Indonesia, the country's largest cement producer, has reduced cement selling prices by around 10 per cent this year and is looking to increase exports against a backdrop of heightened competition in a weaker demand environment.

Following a presidential instruction in January this year calling on state-owned cement producers to lower their prices by IDR3000/bag, Semen Indonesia has so far adjusted its prices by around 10 per cent this year, the Jakarta Post reports. Cement prices had been around IDR60,000/bag at the start of 2015.

The company has reduced prices to adjust to current realities currently prevailing in the domestic industry and market. “A number of new facilities have started operating, new supplies are coming in. We have to lower our prices to keep up with the market with overall plunging domestic demand,”  the Jakarta Post quoted Semen Indonesia’s marketing director, Amat Pria Darma, as saying.

Target out of reach?
As well as new players entering the market, domestic cement demand has contracted since the start of the year on the back of the slowing economy. For the first five months of 2015, nationwide consumption contracted by 3.8 per cent to 22.873Mt.

During the period, Semen Indonesia’s domestic sales (including group companies Semen Padang and Semen Tonasa) fell by 5.3 per cent YoY to 9.913Mt. Amat told the daily newspaper that he was pessimistic that the company could achieve its target of six per cent growth this year, or even maintain it at the same position as last year, despite the construction season that usually begins in the second half of the year.

Export strategy
In a bid to cope with unfavourable market conditions at home, the company is now looking to export markets as a way of maintaining utilisation levels. Semen Indonesia increased exports to 184,181t over the January-May 2015 period versus 22,155t in first five months of last year.  However, the benefits of a rise in exports should be viewed in light of high transportation costs.

Semen Indonesia corporate secretary Agung Wiharto said that if the domestic economy fails to show signs of revival, the company would look to initiate contract-based exports in the near future, in comparison to its current spot sales. y relying on a six-month to one-year contract, the company could ship more product, thus ensuring a more certain market.

“We hope to see our exports hit 1Mta this year. The prospect is good, given some of our traditional markets have no cement producers,” he told the Jakarta Post. Among Semen Indonesia’s major customers are Timor Leste, Bangladesh and the Maldives.