This week, CemNet featured a plethora of half-yearly financial reports from leading cement producers, including Semen Indonesia Group (SIG). SIG operates in a domestic market with an industry capacity of 120.5Mta and, even with a leading 42 per cent market share, it is seeing competition increase from new entrants that have added 24.7Mta of cement capacity between 2013-18. To meet this challenge, SIG is poised to embark on a regional expansion, while its nearest domestic competitor is expecting better opportunities for growth at home in the 2H21. 

Indonesian cement demand is forecast to grow by 0.1 per cent between 2019-22, according to the Ministry of Industry. SIG has seen its domestic sales remain sluggish, dropping 1.5 per cent YoY to 14.345Mt in 1H21 and has relied on regional sales to weather the COVID-19 period, while import volumes continue to rise. 

The Indonesian giant's main markets are in East Java, where SIG has a 61 per cent market share and Sumatra where it leads the market with 55 per cent. In Sulawesi it holds a 49 per cent market share and in Central Java, where it is second in the market with 28 per cent. However, in the largest market of West Java, SIG only has a three per cent market share. 

SIG's new alliance
Growth opportunities for SIG could still be just around the corner. It made a significant deal in early August to form an alliance with Taiheiyo Cement which is a shareholder in SIG subsidiary PT Solusi Bangun Indonesia Tbk. Under the agreement, Taiheiyo Cement Corp is to invest US$220m for a 15.04 per cent stake in publicly-listed PT Solusi Bangun Indonesia (SBI), through a rights issue. 

Hendi Prio Santoso, president director of SIG, argues that the step was a strategic endeavour to strengthen SIG's position as the largest company in southeast Asia for the supply of building materials. "This is a milestone for SIG Group to be able to establish cooperation with international standard companies. By itself, this collaboration will increase the company's value and capability in facing the competition in the cement industry in the world," he said.

The strategic policy will see SIG explore opportunities outside of Indonesia. SIG Director Fadar Judisiawan said the investment partnership would involve SIG developing its products and expanding its market reach to Africa, Australia and China.

Cement exports have already seen a dramatic rise from Indonesia as CemNet reported in July with 5M21 exports rising by 119 per cent YoY. 

PT Indocement Tunggal Prakarsa Tbk
SIG competitor PT Indocement Tunggal Prakarsa Tbk (HeidelbergCement group) is particularly strong in West Java, Indonesia's largest cement market, where it leads volumes with a 49 per cent market share and in Kalimantan where it has a 44 per cent share. However, Indocement is still a long way behind SIG in terms of domestic capacity with 21 per cent of the country's installed capacity.

However, Indocement has been capitalising on domestic sales and exports during the 1H21. It saw its cement sales volume rise by nine per cent in the domestic market in 1H21 and exports increase by a staggering 513 per cent. Bagged cement sales in Indonesia were especially strong for the HeidelbergCement subsidiary between 1 February and 30 June, when they rose by 10 per cent compared to bulk sales advance of 1.4 per cent. 

Indocement is buoyant on its domestic prospects as it has forecast national cement demand to rise by five per cent for the full-year 2021. An increasing number of infrastructure projects as well as a VAT incentive on new homes for the residential sector and lower interest rates should see a strong 2H21 for Indocement.

Outlook
For both leading Indonesian producers, the domestic scene remains a delicate arena where cement price increases are being counterbalanced by increasing energy prices. More new capacity is headed for Central Java where Grobogan Cement is expected to start commercial production at its 2.1Mta integrated plant by the end of 2021. Another project under construction is Hongshi Holding Group's 2.6Mta plant in East Java. Within this context, SIG is right to be exploring a more regional approach to cement sales, and setting its sights beyond Indonesia's borders.