Indonesian Cement Industry starts expansion

Indonesian Cement Industry starts expansion
The improvement in the country's economic condition in 2010 has boosted development of the country's cement industry. Work in a number of infrastructure and property projects, shelved earlier, has been resumed. The residential building projects have been the largest consumer of cement in the country. Many people build and renovate houses with the improvement in the people's welfare.
In 2009, cement industry suffered a setback. Demand for cement was weak amid the global slump followed the crisis late 2008. It was shown in the cement production that shrank 3.6% to 36.9 million tons in 2009 from 38.3 million tons in the previous year despite an increase in production capacity. The country's cement production capacity was 47.9 million tons per year in 2009, up 9% from 44 million tons in 2008. The cement industry, therefore, had large idle capacity in 2009.
In 2010, demand for cement grew fast and many factories have operated almost at full capacity. Many producers, therefore, plans expansion. Meanwhile, PT Semen Andalas has resumed operation in Aceh since September 2010, after being out of business when its factory was destroyed by tsunami that devastated Aceh late 2004. The operation of PT Andalas, which is owned by France's cement giant Lafarge brought the country's total production capacity to around 50.8 million tons in 2010..
The capacity expansion by cement industry is planned to keep pace with growing demand that follows the country's economic growth. In addition, replacement of old factories is needed as they are no longer efficient. It would not be easy for small capacity producers to compete in the market especially with the increase in production cost with the higher fuel cost. The prices of coal as the main fuel for cement factories have increased to follow the rise in the oil prices.
Small players like Semen Kupang, Semen Baturaja, and Semen Bosowa could not take full advantage of the rise in cement demand. There are a number of hurdles that keep them out of contention such as locations being tool far from potential markets--Java, Sumatra and Sulawesi and difficulty in transport.
The availability of energy is a vital factor in the development of cement industry. Modernization and modification of factories are made using energy saving machines and to use secondary energy.
The availability and prices of coal are among important factors determining plan for capacity expansion as fuel cost is a major element of production cost. A number of cement producers, planning capacity expansion have to carry out studies to ascertain that coal supply is well secured. The certainty of supply is important as high coal prices in international market may result in more coal exported causing shortage on the domestic market.
Types of cement produced
There are a number of types of cement produced in Indonesia. The main type is OPC (Ordinary Portland cement) or Portland Cement Type I which accounts for 80% of the country's total production. Another main type is composite cement. Other types are produced in small quantity.
Production capacity expands 9%
In the past several years, the country's cement production capacity has remained unchanged. Capacity expansion began only in 2002 for clinker--from 43,780,000 tons to 44,425,000 tons a year or an increase of 1.5% and for cement--to 47,490,000 tons from 47,140,000 or an increase of 0.7%.
However, in 2005 and 2006, the cement production capacity fell as one of the major producers PT. Semen Andalas stopped operation as its factory was destroyed by tsunami late 2004. In addition some old factories were out of function such as those of PT. Semen Padang with capacity of 100,000 tons/year of clinker and 200,000 tons/year of cement; PT. Semen Gresik with a capacity of 800,000 tons/year of clinker; PT. Semen Tonasa with a capacity of 60,000 tons/year of clinker; and PT. Holcim Indonesia with a capacity of 1 million tons/year of clinker and 1 million tons of cement per year.
According to ASI, until 2008, the country's cement production capacity remained unchanged at 44,890,000 tons per year, as there was no producers expanded their capacity or build new factories. In 2009, the country's installed capacity rose 9% to 47.9 million tons per year.
Capacity utilization was 76%. Based on production capacity, private cement companies are larger than state cement companies. Private companies account for 60% of the country's total production capacity with state companies for 40%.
In 2010, the country's production capacity is expected to increase by 2.9 million tons to 50.8 million tons per year. The additional capacity is contributed by five producers, which will invest around US$ 645.6 million for capacity expansion. A new cement mill with a capacity of 1.5 million tons of Indocement is already operational in Cirebon. A new factory with a capacity of 1.6 million tons is being built in Aceh by PT Semen Andalas to replace its old factory destroyed by Tsunami late 2004.
Producers
PT. Semen Gresik, Tbk (PT. SG)
PT. SG has three factories located in Tuban and Gresik, East Java with a total production capacity 8.5 million tons per year. PT. SG has two cement special ports in the two cities, one cement packaging plant in Ciwandan, Banten and 11 units of buffer warehouses in various areas Java and Bali.
On 15 September 1995, PT. SG took over both PT. Semen Padang (SP) and PT. Semen Tonasa (ST) and became its subsidiaries with 99.9% stake.
PT SP in Padang, West Sumatra, is strategically located to supply market in Sumatra. It is the largest supplier of cement for Sumatra. Part of its production is also sent to Java. It also exports part of its production. It has 6 units of packaging plant to support cement distribution in Padang, Medan, Banda Aceh, Batam, Jakarta and Banten. SP also have 14 units of buffer warehouses and cement special port in Teluk Bayur, and Ciwandan of Banten.
The types of cement produced by SP are Ordinary Portland Cement (OPC), Portland Pozzoloan Cement (PPC), Portland Composite Cement (PCC), Oil well Cement (OC) and Super Masonry Cement (SMC).
In 2009, cement production of SP totaled 5.4 million tons down 8.1% from 5.8 million tons in 2008. The decline was a result of major earthquake that rocked Padang in 2009.
PT Semen Tonasa (ST) in Pangkep, South Sulawesi has three factories producing the types of OPC and PPC. ST is the largest supplier of cement for eastern Indonesia including Sulawesi, Kalimantan and Nusa Tenggara. PT ST has 8 units of cement packaging plant in Makassar, Bitung, Samarinda, Palu, Banjarmasin, Ambon and Bali and 5 buffer warehouses. It also has special port to facilitate shipments of its production in Biringkassi.
Currently the SG group has a total production capacity of 19 million tons per year including 9 million tons of PT. Semen Gresik, 5.9 million tons of PT. Semen Padang and 4.1 million tons of PT. Semen Tonasa.
SGG has planned to build 2 new factories each with a capacity 2.5 million tons in Java and Sulawesi. The new factories are expected to come on line in 2012 bringing the production capacity of SGG to 23.9 million tons. Originally SGG planned to build 10 units of coal-fired power plant with a total capacity of 410 megawatts. Construction of the facilities is estimated to cost US$573 million to be operational in 2011. The facilities were to be built to supply power for the
Tuban factories with a capacity of 2 x 65 MW; for the Indarung factories in West Sumatra 3 x 35 MW, for Tonasa factories in Sulawesi 1x35 MW, for new cement factories in Java 2x32MW and for a new cement factory in Sulawesi 2x35 MW).
However, later the company decided to build only two more urgent power plants with a total capacity of only 2x35 MW to cost US$ 114 million in Sulawesi. In 2009, PT. Semen Tonasa secured a loan of Rp 3.5 trillion from syndicate of state banks to build the power plants.
SG also plans to build 4 units of packing plant to cost around Rp600 billion internally financed. The plants will be built in Sorong of Papua, Pontianak of West Kalimantan, East Kalimanatan and Banyuwangi of East Java to facilitate cement distribution.
The company also plans to build a cement plant in Papua if the market expands warrant investment in factory. In 2010, SG sets aside USS 402 million for capital expenditure. Part or US$ 264 million of the fund would be used to finance the construction of new cement factories . The company allocates US$ 1.26 billion for capital spending. For the 2008--2014 period.
The business lines of the SGG quite vary . In addition to cement production by PT. Semen Gresik Tbk, PT. Semen Padang and PT. Semen Tonasa; and cement packaging by PT. Industri Kemasan Semen Gresik, the group has business in industrial estate by PT. Kawasan Industri Gresik; limestone mining by PT. United Tractors Semen Gresik; steel fabrication, civil contracting service by PT. Swadaya Graha; general transport service, general trading, inter-island trade, business agency and good distribution under PT. Varia Usaha; and asbestos and building material production and casting industry by PT. Eternit Gresik.
Cemex sells stake to Blue Valley Pte. Ltd.
Dispute over share ownership in PT SG between the government and CEMEX ended with the Mexican cement giant selling its 24.9% stake to the Rajawali Group through an investment vehicle company Blue Valley Pte. Ltd. at a price of US$ 337 million .
The Rajawali Group, which is controlled by Peter Sondakh, acquired the stake after the government decided not exercises its rights to buy back the stake from Cemex. Under conditional sale and purchase agreement in Sept. 1998, the government was the first party to receive any offer by Cemex to sell its stake. Offer could be made to other buyers if the government decided not to buy the stake. Cemex also agreed to drop its legal suit against the government filed earlier with an international arbitration body.
Cemex acquired the stake from the government in Sept. 1998 at a price of US$ 1.38 per share and sold it to the Rajawali Group with a profit margin of US$ 0.9 per share.
Currently, PT. SG is 51.01% owned by the government 24.9% by Blue Valley Hodings, Pte and 24.09% by investing public.