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EY Indonesia's Cement Industry PDF
EY Indonesia's Cement Industry PDF
EY Indonesia's Cement Industry PDF
in an oversupplied
market
Overview of Indonesia’s cement industry
October 2016
Contents
Indonesia’s cement industry in 2016 3
Market overview and competitive
5
landscape
Industry competitiveness and
9
profitability
Key contacts 22
By perforce, the existing players is being forced to forgo the high profit margin
that they used to enjoy in the past as they have to reduce their selling price in
order to defend their market share. While maintaining brand awareness should
remain to be a priority, the existing players need to look after the importance of
pricing strategy. In 4 months period from December 2015 to April 2016, the
big three players market share have decreased by 3% from 85% as of to 82%,
most notably in the region where the new entrants’ production facilities are
located.
27.8%
14.3%
5.2% 2.5%
3.0% 2.4% 1.4% 0.4%
Semen Indocement Holcim Bosowa Lafarge Semen Cemindo Jui Shin Semen
Indonesia Baturaja Kupang
41.6%
26.9%
13.7%
4.9% 3.0% 2.5% 2.2% 1.8% 1.5% 1.1% 0.5% 0.4%
-4.1%
1,027 1,072 1,029
966 947 962 964 950
902 853
838 884 890 878 881 926 916 874 939 924
820 828
772 777
689
47.7%
46.3%
45.1% 46.9% 46.2%44.3% 45.5%
42.4% 42.9% 44.1% 43.8% 42.5% 44.4%
38.9% 41.0% 39.1%
37.9% 36.4% 36.8%
34.6% 35.3%
30.1% 33.0%
29.2%
24.7%
Bulk Bag
-5.0%
-10.6%
As new entrants are struggling to gain market share, we expect that the
players will engage in more intense price war in the future. The ability to
survive the competition is determined by how far can the players lower its
The declining selling price. Therefore, it is important for the players to achieve high
energy prices and utilization level as cost will decline in line with the increase in production.
appreciation of Through cost optimization, the players will gain pricing advantage which is
Rupiah against US the key to survive the competitive market.
Dollar could reduce However, given the continuous increase in supply and the persistent
the loss of profit oversupplied market condition, achieving high utilization level will turn out to
resulting from be a challenging task. As a matter of fact, the average utilization rate is
lower selling price forecasted to decline 69% in 2016 and 65% in 2017. EBITDA/ton of Semen
Indonesia and Indocement are also forecasted to decline from USD19/ton and
USD26/ton in 2015 to USD18/ton and USD24/ton respectively. Nonetheless,
Semen Indonesia and Indocement are forecasted to perform better with
utilization rate of 75%-77% by 2017E, compared to the non-big three players
with utilization rate of 45% by 2017E.1)
1) Morgan Stanley estimates
60%
40%
20%
0%
2011 2012 2013 2014 2015 2016E 2017E
Source: Morgan Stanley
Amid many pressures that restrain growth, the declining energy costs
(including electricity) seem to be a lifeline for the cement industry.
Considering the fact that electricity accounts for almost half of the cement
manufacturers’ cost of production, the reduction in energy prices could The declining
somewhat compensate the loss of revenue resulting from lower selling price. energy prices and
appreciation of
As of the first quarter of 2016, average coal price has been declining -15% y- Rupiah against US
o-y while average electricity tariff for I-4 class and average gasoline have Dollar could
been declining for -10% y-o-y in the same period. compensate the
loss of revenue
In addition to declining energy prices, Rupiah is also appreciating against US from lower selling
Dollar. As of September 2016, Rupiah is held stable at around
IDR13,000/USD. The appreciation should also have a positive impact as most price
of the manufacturing cost components are in US Dollar denomination.
The weak macroeconomic condition and the long-running tight interest rate
policy imposed by the Central Bank (Bank Indonesia or “BI”) has negatively
affected the growth in property sector. Accordingly, the demand growth for
cement products was significantly decreasing, especially in Java region The bleak outlook
where the property sector boom occurred prior to the interest rate in property sector
tightening. is likely to continue
for a while until the
In an effort to stimulate economy and recover the growth in property sector,
BI have cut the interest rate gradually from its peak at 7.75% as of November decision to cut the
2015 to 6.50% as of July 2016. However, the property price index that was interest rate takes
barely increasing in 6 months period from December 2015 to June 2016, effect
indicating that the sector might be lagging in responding the monetary
stimulus. Thereof, the bleak outlook is likely to continue for a while until the
policy takes effect.
7.75%
8.00%
7.50%
7.00%
6.50%
6.00% 6.50%
5.50%
5.75%
5.00%
4.50%
4.00%
Oct-12
Oct-13
Oct-14
Oct-15
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
190.02 193.13
181.64
170.90
153.58
167.79 165.30
144.20 139.76
113.83
While slow growth in property sector’s growth might seem dreadful to the
cement industry, the government’s infrastructure development plan might
provide a relief for the slow growth in demand.
The increase in
government President Joko Widodo’s administration has risen the infrastructure spending
infrastructure budget from IDR161 trillion in 2014 to IDR 276 trillion in 2015 as the
spending could administration campaigned to close the infrastructure quality gap with the
provide a relief to neighboring countries. While this might sound like a good news, the
the demand of government has to strive to ensure that the increase in infrastructure budget
is accompanied by high level of realization.
cement product
amid the low Figure 14. Government infrastructure budget
growth in property Government capital Realization of
Absorption
sector expenditure budget spending
(%)
(IDR tn) (IDR tn)
33 new dams 30
15 new airports
hydroelectric power plants
6 air cargo facilities 1 million ha irrigation
system
Sri Lanka
Myanmar
Increasing foreign investment and high
domestic prices
Myanmar is one of the region’s most promising
emerging markets. The growth of Myanmar's
GDP and GDP/capita after the country opened up
for foreign investments in recent years has
resulted in an increase in consumer demand and
foreign investments.
Cambodia
Half of the cement needs are imported from
Thailand and Laos
Cambodia's demand is significantly higher than its domestic
production capacity. The shortfall is made up by imports, mainly
from Vietnam, and the remaining comes from Thailand and Laos.
Cambodia’s demand for cement has reached 8 million tons/year
and the existing three cement plants in Kampot province can only
supply about half of this amount.
Brunei
13% of the total cement needs were imported from China
and Thailand
Brunei has one 550,000 tons/year capacity grinding plant in Muara. The
country has an excess of domestic cement demand as it only has one
production facility. Around 13% of the total cement needs were imported
from China and Thailand.
Philippines
Imports of cement grew from 4,000 tons in 2014 to
314,000 tons in 2015
Cement sales have risen by 10.7% year-on-year to 13.2 million tons in the
first half of 2016 due to increased government spending on infrastructure
and improved private sector involvement in construction. Cement
Manufacturers Association of the Philippines data shows that imports of
cement grew from 4,000 tons in 2014 to 314,000 tons in 2015. Cement
imports of 161,000 tons were recorded for the first quarter of 2016.
93% 87%
Eastern Indonesia
12M15Y 4M16Y
24% 23%
76% 77%
Sahala Situmorang
Partner
Transaction Advisory Services
EY Indonesia
Reuben Tirtawidjaja
Senior Manager
Transaction Advisory Services
EY Indonesia
About EY
ED. None
This material has been prepared for general informational purposes only
and is not intended to be relied upon as accounting, tax or other
professional advice. Please refer to your advisors for specific advice.
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