New projects push Indonesia towards overcapacity

Indonesia's dynamic market has attracted both foreign and local cement companies to invest in new cement plants, intensifying competition for existing producers and tipping the industry towards oversupply.

Four new entrants - including companies from Taiwan, India and two local firms - plan to build new factories in Indonesia with a combined capacity of 12.1Mta, according to a report in the Jakarta Globe. The total investment is estimated at between US$1.3bn and US$3bn over the next few years.

The factories include India's Ultratech that seeks to establish a plant in Wonogiri, Central Java, with an annual production capacity of 4Mta. Local conglomerate, PT Gajah Tunggal Tbk, is currently building a 2.3Mta plant in Grobogan, also in Central Java.

Lucky Cement Taiwan has partnered with local company Fajar Semen Barru for a plant in Barru, South Sulawesi. The plant will have an annual production capacity of 3.3Mta.

Meanwhile, the Medco Group, a local energy business group controlled by tycoon Arifin Panigoro, is setting up a new cement operation in Gombong, Central Java.

These factories will boost Indonesia's cement production capacity beyond 100Mta in next few years, which is a milestone that could be reached as soon as this year if new plants – by China's Anhui Conch Cement and Jui Shin; Thailand's Siam Cement; and local producers Cemnido Gemilang and Panasia Cement – also start production.

Semen Indonesia, the country's largest cement producer, also expects its 3Mta plant in Rembang, Central Java, to go online this year.

On the other hand, domestic cement sales may only increase to 63Mt this year, up 5 percent from last year, according to the Indonesia Cement Association (ASI).

Commenting on the situation, ASI chairman Widodo Santoso said the government should anticipate more interest from foreign investors in the domestic cement market and that it should move to protect existing players.

Widodo said local cement producers needed to come up with a strategic plan to boost exports in order to remain competitive. Last year, Indonesian cement exports amounted to 1Mt, an increase of 280 percent from the previous year.