Indonesia Cement to Achieve Lower-End of Industry Target

WE Online, Jakarta - Indonesian cement producers are on track to achieve the lower-end of the Indonesian Cement Association's (ASI) 4% to 5% growth target, with Fitch Ratings expecting a boost in demand during 2H16 due to new construction projects and more favourable economic conditions.

Domestic cement demand rose 4.3% yoy in 1Q16 to 14.4 million tonnes, according to ASI's latest cement consumption data. This followed a muted increase of only 0.9% yoy in 2015. However, Fitch said the quarterly number masks the slower demand growth in February of 3.4% yoy and March of 2.1%, following strong 7.2% demand growth in January.

The 1Q16 numbers also include contributions from two cement producers that joined ASI this year, PT Semen Jawa and PT Sinar Tambang Arthalestari. Stripping out those two companies, 1Q16 cement demand growth was only 1.2% yoy.

Fitch says the recent slowdown can be attributed to weak property pre-sales and heavy rains, which have affected property-related projects. This is reflected in bag cement sales increasing only 3.3% yoy in 1Q16.

Bag cement is usually used for property-related construction and constitutes 76% of total cement demand. On the other hand, infrastructure projects drove a 7.9% yoy increase of bulk cement sales, mainly used for infrastructure-related projects and representing 24% of total cement demand.

Fitch says it will take time for property pre-sales to fully recover and lead to increased construction activity, despite lower interest rates and recent relaxation in some property-related regulations.

Consumption in 1H16 may also be negatively affected by April's unfavourable weather and the upcoming Eid Islamic fasting month that falls in June-July, when cement demand tends to be weaker.