Cement Industry Indonesia

Cement is an important element for a nation's economy as this binder is a building material used for infrastructure and property development. As such, cement sales gives valuable information about savings and investment in a country. Rapidly accelerating domestic cement sales are a sign that the infrastructure as well as the property sectors are booming. The cement industry of Indonesia is a lively one. The country's total installed production capacity expanded from 37.8 million tons in 2010 to over 100 million tons in 2016, while domestic sales surged from 40 million tons to an estimated 60 million tons over the same period.

However, similar to other industries, Indonesia's cement sector has been plagued by Indonesia's economic slowdown that started in 2011. After rapidly rising cement sales in the years 2010-2012, sales started to slow from 2013 onward due to slowing economic growth, weakening purchasing power, low commodity prices, uncertainties surrounding the winners of Indonesia's 2014 legislative and presidential elections, and the higher benchmark interest rate (raised aggressively in 2013 in an effort to combat high inflation, the wide current account deficit and to support the ailing rupiah amid monetary tightening in the USA). Apart from the higher interest rate, Indonesia's central bank also implemented other measures that cooled the country's property market, such as a higher down payment requirement.

In 2016 this tighter monetary trend reversed. Bank Indonesia cut its key BI rate and raised the loan-to-value ratio for the purchase of a house in a bid to boost the nation's sluggish property sector. This may bring some new life in this sector in the second half of 2016. The residential property market accounts for the majority of cement demand in Indonesia and therefore the nation's cement players are eagerly waiting for a rebound in the property sector.

Despite the recent slowdown in Indonesia's property sector, the sector's long-term picture remains positive with the continuation of a rapidly expanding middle class. With rising per capita GDP people want to live in a better house. Moreover, Indonesia has a young population with about half of the population being below the age of 30 years. This implies that in the decade ahead there should be million and million of first-home buyers.

Cement consumption is still low in Indonesia with per capita cement production at approximately 300 kilogram. This figure is much lower than cement consumption in its peers Malaysia (over 600 kilogram per capita) or Vietnam. A low per capita cement consumption figure implies that infrastructure development is still underdeveloped in Southeast Asia's largest economy. The lack of quality and quantity of infrastructure is indeed one of the main bottlenecks in Indonesian society as it undermines connectivity thus seriously raising logistics costs, making businesses less competitive, while also causing social problems (for example because access to healthcare can be difficult in the rural regions).

Indonesian Cement Sales 2008-2016:

Year	Cement Sales	YoY Growth
2016	62 million	+1.6%
2015	61 million	+1.8%
2014	60 million	+3.3%
2013	58 million	+5.6%
2012	55 million	+14.6%
2011	48 million	+20.0%
2010	40 million	+4.2%
2009	38.4 million	+1.1%
2008	38 million	-

Java, the most populous island of Indonesia, accounts for more than half of the country's total cement demand, followed by Sumatra.