CERAMIC TILE INDUSTRY: ITS CONDITION AND PROPECTS IN THE ERA OF CRISIS.

The current economic crisis has dealt a deadly blow to the industries of building materials, including ceramic tiles. The cost of ceramic tile production has soared especially because the procurement of basic materials for ceramic tiles is partly dependent on import sources. Meanwhile, the sector of construction --especially the development of property such as office buildings, shopping centers, hotels, apartment blocks, and real estates--has discontinued its activity due to the collapse of the business sector. The retail market for building materials-- which is composed of households and individuals-- has also slumped with the people's weakened purchasing power as a result of the monetary and economic crisis. As a result, the performance of Indonesia's ceramic tile industry has continued to worsen, notwithstanding the fact that the installed production capacity of this industry rose by as high as 33.5% in 1997.

In Data Consult's estimates, the total domestic consumption of ceramic tiles for 1997 reached only 140.2 million square meters, down 12.8% from the previous year. In 1998, the decline is expected to be higher, i.e. 30% at the very least, due to the stronger pressures from the crisis. The Department of Industry and Trade projects the ceramic tile industry's rate of production capacity utilization for 1998 at only 30%. Such circumstances have practically discouraged new investors from entering the ceramic tile industry as can be seen from the fact that not a single investment project in this industry has been approved during the first ten months of 1998.

The weak domestic demand has forced Indonesian ceramic tile producers to seek ways to boost their exports. With the sharp depreciation of the rupiah against foreign currencies, notably the U.S. dollar, Indonesian ceramic tile producers have an opportunity to raise high profits from exports. The problem, however, is that the export markets for ceramic tiles are not easy to penetrate because they are already marked with tough competition. Assuming that production costs in Indonesia are very low, foreign buyers generally ask Indonesian ceramic tile producers to sell their products at prices lower than what is applicable on the international market. Last year, Indonesia managed to export only 28,452 tons of ceramic tiles (worth US$ 11.7 million), as opposed to 33,830 tons (worth 13.3 million) in 1996. For the first four months of 1998, the volume of such exports reached only 13,815 tons and the value US$ 4.6 million.

Indonesian ceramic tile producers are basically oriented to the domestic market. A developing country with a large population, Indonesia provides a market with a large potential to absorb building materials, including ceramic tiles. In fact, Indonesia has been one important target market for foreign ceramic tile producers. This can be seen from the fact that Indonesia imported as much as 41,957 tons of ceramic tiles (worth US$ 15.9 million) in 1997. In 1996, the volume of such imports was even bigger (54,092 tons) and so was the value (US$ 20.9 million). These import figures were higher than the volume and value of ceramic tiles which Indonesia managed to export.

A number of ceramic producers also turn out a new type of products that are called granito ceramic tiles, which are consumed mostly by luxury houses and high-rise buildings. A granito ceramic tile is a ceramic tile which is homogenous, meaning that every part of it is made from the same mixture of materials. The surface of a granito ceramic tile is glazed. Since it has to be homogenous and strong, a granito ceramic tile has to be made from high-quality materials.

Among the advantages of granito ceramic tiles over the regular products are that the former are more solid and less water-absorbant than the latter. This means that a granito ceramic tile are more resitant to impact and scratches than a regular product. In addition, the color of a granito ceramic tile is also more durable than that of a regular product. As is the case with regular ceramic tiles, the main basic materials for granito products are as follows: feldspars, clay, pigment, and silica sand. The clay for granito ceramic tiles is procured partly from import sources.

[Diagram OMITTED]

Ceramic tiles

Indonesia is in a good position when it comes to producing ceramic tiles: the basic materials are found in abundance in the country; labor wages are low; and per capita domestic consumption is still low, even the lowest in ASEAN. This condition provides a good opportunity for Indonesia to develop its industries of ceramic goods.

The industries of ceramic tiles in Indonesia produce, among others, tableware, wall/floor tiles, sanitary ware, insulators, roof tiles, and handicraft products. The most rapid growth has been shown by the ceramic tile industry, followed by the tableware industry.

Ceramic is an end product which is produced by burning a mixture of certain non-metal minerals in very high temperatures. The non-metal minerals used in producing ceramic include clay, kaolin, feldspar, quartz sand, and other additives. In Indonesia, the types of ceramic products that are produced on a large-scale basis are wall tiles, floor tiles, bricks, and roof tiles.

Basically, ceramic tiles have standardized sizes and shapes. However, ceramic tiles come in different physical qualities, especially in terms of surface hardness. In this regard, there are three categories of ceramic tiles as follows: light duty/traffic, semi-medium, and medium-duty/traffic. Light duty/traffic ceramic tiles are used for houses while semi-medium and medium duty/traffic ceramic tiles are used for buildings where there are lots of people walking to and fro like shopping centers, hospitals, and hotels.

The process of ceramic tile productions consists of the following stages: the processing of basic materials, the shaping of bodies through pressing, the making of glazing line, printing, and burning (inside a kiln). The making of glazing line can be conducted either before or after burning, and the method can be dipping, spraying, or smearing.

Seen from how the surface looks, there are two types of ceramic tiles: glazed and unglazed. Nearly all ceramic tile producers in Indonesia produce the two types. By design, there are also two types of ceramic tiles: plain and texturized. Most ceramic tile producers produce plain ceramic tiles in white or grey color, and nearly all of them produce ceramic tiles with a marble design.

Ceramic tiles are found in different colors, of which light colors, dark colors, maroon, and brown are dominant. As for light colors, blue and green are the most produced. As for pastel colors, pink and peach are dominant.

Ceramic tiles come in three different size categories: small (with a surface of up to 200 square centimeters), medium (200-900 square centimeters), and large (more than 900 square centimeters). Among the different sizes, ceramic tiles with a surface of 10 x 20, 20 x 20, and 30 x 30 square centimeres are the most produced.

Imported basic materials

Clay, feldspars, and kaolin are found in abundance in Indonesia. However, since they have low quality, some ceramic tile producers use imported clay, feldspars, and kaolin. To make high-quality ceramic tiles like granito products, producers use feldspars imported from, among others, Turkey, clay imported from Ukraine, and pigments from Spain. Silica sand (kaolin) is procured mostly from import sources because local kaolin has low quality.

Kaolin is used not only by the ceramic tile industry but also by other industries such as paper, rubber, paint, and pharmaceuticals. For the period of 1993-1997, the volume of Indonesia's kaolin imports fluctuated with the tendency to decline. It reached its peak level of 132,108 tons in 1995, up 74.7% from 75,597 tons in 1994. In 1997, it dropped to 106,393 tons. Over the same period, the volume of such imports grew at an average annual rate of 14%. For the first four months (January-April) of 1998, according to data from the Central Bureau of Statistics, the volume of such imports reached 23,111 tons and the value US$ 6.4 million.

Table - 1 Indonesia's kaolin imports, 1993 - 1998

          Volume      Value
Year      (tons)    (US$'000)

1993       74,637     20,437
1994       75,597     20,084
1995      132,108     37,142
1996      125,343     33,353
1997      106,393     29,116
1998(*)    23,111      6,380

(*) January - April

Source: Central Bureau of Statistic/Data Consult

Production capacity 227 million square meters per annum 

The abundant supply of basic materials and the sheer size of Indonesian population were among the most important factors which led to the expansion of the ceramic tile industry in Indonesia. For the period of 1993-1997, the industry's production capacity rose the most rapidly in 1997, from 170 million square meters per annum in 1996 to 227 million square meters or by 33.5%.

Table - 2 Indonesia's ceramic tile production capacity, 1993 - 1997

                (000'[m.sup.2]/year)

                 Production   Growth
Year              capacity     (%)

1993              136,000       -
1994              156,000      14.7
1995              168,000       7.7
1996              170,000       1.2
1997              227,000      33.5

Average growth                 14.3

Source: Department of Industry and Trade/Asaki/Data Consult

Floor tiles the most produced

According to the Department of Industry and Trade, there are currently 43 ceramic tile producers operating in Indonesia with a combined production capacity of 227 million square meters/annum. Nearly all of them produce floor tiles. Some 71.9% of the installed production capacity or 163,300,000 square meters per annum is for the production of floor tiles, and the rest for the production of wall tiles.

The largest of the ceramic tile producers is PT Keramik Indonesia Asosiasi (KIA), which was established in 1970. Initially, the company operated under the foreign investment (PMA) scheme and it had only one plant, which is located in Tanjung Pandang, Belitung. In 1992, PT KIA changed its status into one operating under the domestic investment (PMDN) scheme. Affiliated to the Arya Upaya Group, which itself is owned by the Ongko Group, PT KIA currently has two ceramic tile plants with a combined production capacity of 24 million square meters per annum, one in Belitung and the other in Cileungsi, Bogor.

A pioneer of Indonesia's ceramic tile industry, PT KIA has recently diversified to a new type of products, i.e. roof tiles. The company's roof tile production plants are located in Java, and they are managed by its two affiliates, namely PT Serpih Mas and PT Keramik Mas. PT Serpih Mas has a capacity to produce 12.8 million square meters of roof tiles per annum and PT Keramik Mas 19.2 million square meters.

Originally, PT KIA was jointly owned by Hock Soon & Co of Singapore (46.2%) and its local partners Kaharudin Ongko (36%), Diah Koswara (14.8%), and Darwin Thiohardi (3%). Following the change in 1992 of its status into a PMDN company, PT KIA became a publicly listed company in 1994 and its shareholding composition changed as follows: 67.53% owned by PT Ongko Multi Corpora, 3.06% by Kaharudin Ongko, and 29.41% by the public.

The other big players in Indonesia's ceramic tile industry are as follows: PT Mulia Keramik Indahraya (of the Mulia Group), which has a capacity to produce 29 million square meters of floor tiles and 17 million square meters of wall tiles per annum and markets its products under brand name "Mulia Keramik"; PT Senrico Djaja Mariner Industries (of the Manunggal Sempurna Group) with its "Super Italia" products; PT Angsa Daya (of the Kedaung Group) with its "IKAD" products; PT Metropole Megah/PT Satyaraya Keramindo Indah (of the Satya Djaja Group) with its "Roman" and "Royal" products; and PT Asia Victory Industry Ltd. with its "Asia Tile" products. Brandless ceramic tile products are also available on the domestic market to cater to medium-lower income consumers (simple houses).

PT Senrico Djaja Mariner Industries (SDMI), which commenced its commercial operations in 1979, also has sanitary ware and tableware production units. With its plant located in Jakarta, SDMI has a capacity to produce 10.2 million square meters of ceramic tile products per annum.

PT Angsa Daya, which operates under the domestic investment (PMDN) scheme and is affiliated to the Kedaung Group, is known for its glassware products. The company commenced its operations in 1977 and markets its ceramic tile products under brand name "IKAD." As for its tableware products, it markets them under brand name "IKG." In addition to ceramic tiles and tableware, PT Angsa Daya also produces brick fire roofs, granite tiles, and mozaic tiles.

PT Metropole Megah and PT Satya Raya Keramindo Indah are both affiliated to the Satya Djaja Raya Group, which itself is a wood-based business group. The two companies' plants are located in Tulungagung, East Java. PT Metropole Megah, which commenced its operations in 1979, now has a capacity to produce 22 million square meters of ceramic tiles per annum and markets them under two different brand names: "Royal" and "Roman." The company is currently the largest ceramic tile producer in East Java.

The other two ceramic tile producers in Fast Java in addition to PT Metropole Megah and PT Satya Raya Keramindo Indah are PT Asia Victory Industries Ltd. and PT Keramik Diamond Indah (KDI). Like PT Metropole Indah, KDI is affiliated to a wood-based business group, namely the Kayu Mas International Group. PT KDI produces not only floor tiles and wall tiles but also exclusive ceramic tiles for export purposes. These exclusive ceramic tiles are marketed under brand name "Diamond Tiles." Besides purchase orders, PT Asia Victory Industries and PT KDI also serves purchase contract agreements. These two companies currently have annual production capacities of, respectively, 25 million square meters and 9 million square meters.

Table - 3 Ceramic tile producers and their production capacities, 1997

                                          ('million [m.sup.2]/year)
                         Location
Producer                 of plant          Brand       Wall   Floor

Muliakeramik Indahraya   Bekasi        Mulia Ceramic   17.0    29.0
Asia Victory Industri    Surabaya      Asia tile/      10.0    15.0
KIA Serpih Mas           Bogor         KIA/             7.5    16.5
                                        Platinum
Setya Raya Keramindo     Tangerang     Roman/Royal      6.0    16.0
Masterina Keramik P.     Tangerang     Masterina        -      17.0
Senrico Djaja Marmer     DKI Jakarta   Superitalia      2.7     7.5
Union Keramik Utama      DKI Jakarta   Union            9.0     1.0
Keramik Diamond Indah    Gresik        Diamond          2.0     7.0
Angsa Daya               Tangerang     Ikad             2.5     5.5
Arwana Citra Mulia       Tangerang     Arwana           -       7.2
Intikeramik Alamsari     Tangerang     Essenza          -       7.0
Adi Buana Persada        Gresik        Milan            -       6.0
Citra Mandiri
 Cakrawala               Serang        n.a.             -       4.2
Jaya Industri Prakarsa   Tangerang     n.a.             -       4.0
Raja Keramik Indah       Majalengka    RKI              -       3.6
Surya Ragam Prima        Tangerang     n.a.             3.0     -
Cikarang Indah           Cikarang      Asahi            -       2.8
Tjigombang Nusantara     Tangerang     n.a.             -       2.1
Keramik Indah Sejati     Bogor         n.a.             -       2.1
Ubin Kimas Mutiara       Gresik        n.a.             -       2.0
Kualimas                 Sidoarjo      n.a.             -       2.0
Karya Kalindah           Pontianak     n.a.             -       1.8
Bermis Sarana Wisma      Indramayu     Bermis           -       1.6
Banua Batusuri           Pontianak     n.a.             -       1.4
Tera Cota Indonesia      Cirebon       Terracota        -       1.0
Others                   -             -                4.0     -

Total                                                  63.7   163.3
                          ('million
                          [m.sup.2]/
                          year)

Producer                  Total

Muliakeramik Indahraya     46.0
Asia Victory Industri      25.0
KIA Serpih Mas             24.0
Setya Raya Keramindo       22.0
Masterina Keramik P.       17.0
Senrico Djaja Marmer       10.2
Union Keramik Utama        10.0
Keramik Diamond Indah       9.0
Angsa Daya                  8.0
Arwana Citra Mulia          7.2
Intikeramik Alamsari        7.0
Adi Buana Persada           6.0
Citra Mandiri Cakrawala     4.2
Jaya Industri Prakarsa      4.0
Raja Keramik Indah          3.6
Surya Ragam Prima           3.0
Cikarang Indah              2.8
Tjigombang Nusantara        2.1
Keramik Indah Sejati        2.1
Ubin Kimas Mutiara          2.0
Kualimas                    2.0
Karya Kalindah              1.8
Bermis Sarana Wisma         1.6
Banua Batusuri              1.4
Tera Cota Indonesia         1.0
Others                      4.0

Total                     227.0

Source: Department of Industry and Trade/Data Consult

Production growth slows down

After several years of rapid growth, Indonesia's ceramic tile production started to decline in mid-1997, especially because of the monetary and economic crisis. As has been mentioned earlier, the economic crisis has resulted in the construction sector discontinuing its activity and in the people's purchasing power weakening. Meanwhile, export demand has also shown the tendency to shrink. With the continued decline in market demand, Indonesian ceramic tile producers have had to cut down on their production rates on a gradual basis, more so because the cost of basic material procurement--especially as regards imported basic materials--has continued to soar.

In 1997, Indonesia's total ceramic tile production reached only 139.3 million square meters, down 12.2% from the previous year. In 1998, it is expected to drop by at least 30% due to the worsening national economic condition.

Table - 4 Indonesia's ceramic tile production, 1993 - 1997

                    Production      Growth
Year             ('000 [m.sup.2])     (%)

1993                  114,698           -
1994                  131,673         14.8
1995                  151,556         15.1
1996                  159,233          5.0
1997                  139,290        -12.2

Average growth                         5.6

Source: Department of Industry and Trade/Data Consult

Export demand stagnant 

For the past five years (1993-1997), the volume of Indonesia's ceramic tile exports fluctuated with the tendency to decrease. In 1993, for example, it reached 31,367 tons (consisting of unglazed tiles, other unglazed tiles, and glazed tiles) worth US$ 11.2 million. In 1995, the volume rose by 7.1% to 32,111 tons. In 1997, however, it declined by 7.7% to 28,452 tons.

When the U.S. dollar exchange rate hit a record high of Rp 10,000, Indonesian ceramic tile producers found themselves encouraged to boost exports. On the export market, one box of ceramic tiles sold for US$ 2-3, as compared to only Rp 15,000-25,000. For the first four months (January-April) of 1998, according to data from the Central Bureau of Statistics, the volume of such exports reached 13,815 tons and the value US$ 4.6 million.

Table - 5 Indonesia's ceramic tile exports, 1993 - 1998

          Volume     Value
Year      (tons)   (US$'000)

1993      31,367     11,247
1994      29,983     13,091
1995      32,111     13,448
1996      30,830     13,320
1997      28,452     11,712
1998(*)   13,815      4,623

(*) January - April

Source: CBS/Data Consult

United States the main destination

On the global market, Indonesian ceramic tile products have to compete with those from advanced countries. On the European market, for example, they have to compete with ceramic tile products from Italy, Spain, and local producers. Up to now, Indonesia has been exporting ceramic tiles to a number of countries, of which the United States has been the most important destination. In 1997, for example, Indonesia exported a total of 28,452 tons of ceramic tiles, of which 13,287 tons or 46.7% went to the United States. The second largest importer of Indonesian ceramic tiles is Singapore. In the same year, Indonesia supplied Singapore with 4,982 tons worth US$ 2.6 million. The shares of the other countries in Indonesia's total ceramic tile imports have been relatively small.

Table - 6 Indonesia's 1997 ceramic tile exports, by country of destination

Country of          Volume     Value
destination         (tons)   (US$'000)

USA                 13,287     5,428
Singapore            4,982     2,581
Australia            2,983     1,249
Brunai Darussalam    1,924       677
Myanmar              1,831       555
Kuwait                 864       230
South Korea            801        91
Others               1,780       901

Total               28,452    11,712

Source: CBS/Data Consult

Imports still high

Although Indonesia is an exporter of ceramic tiles, it still imports such products in considerable quantities to help meet domestic demand. In 1993, for example, Indonesia imported 21,997 tons worth US$ 7.5 million. With the hectic development of property and office buildings, the volume of such imports also grew rapidly in the following years. In 1996, it reached 54,092 tons (worth US$ 20.9 million). In 1997, due to the monetary crisis, the volume of Indonesia's ceramic tile imports declined sharply although it remained relatively high, namely 41,957 tons. For the first four months (January-April) of 1998, according to data from the Central Bureau of Statistics, the volume of such imports reached 7,523 tons and the value US$ 2.4 million.

Table - 7 Indonesia's ceramic tile imports, 1993 - 1998

          Volume     Value
Year      (tons)   (US$'000)

1993      21,997     7,456
1994      21,205     7,221
1995      39,233    16,057
1996      54,092    20,942
1997      41,957    15,860
1998(*)    7,523     2,435

(*) January - April

Source: CBS/Data Consult

Other glazed tiles the most imported

Indonesia's ceramic tile imports are dominated by ceramic tiles of rectangular shape whose sides are more than seven centimeters long. Of the different types of ceramic tiles, that which is called "other glazed tile cube & similar articles" is the most imported. In 1997, Indonesia imported a total of 41,957 tons of ceramic tiles, of which 32,775 tons or 78.1% were of this type. The second most imported type is the so-called "other unglazed tiles." In the same year, Indonesia imported 7,851 tons of ceramic tiles of this type (worth over US$ 4 million).

Table - 8 Indonesia's 1997 ceramic tile imports, by type

                              Volume     Value
Type of ceramic tile          (tons)   (US$'000)

-Other glazed tile, cube &    32,775    10,966
 similar articles
-Other unglazed tiles,         7,851     4,046
 cubes & similar articles
-Unglazed tile, cube &         1,124       752
 similar articles
-Glazed tile cube & similar      207        96
 articles

Total                         41,957    15,860

Source: CBS/Data Consult

Investor interest non-existent

The prolonged monetary crisis seems to have had its impact on the investor interest in the ceramic tile industry. According to a source with the Investment Coordinating Board (BKPM), there has been no investor interest in this industry for the last ten months while at least 19 new and expansion projects in the same industry were approved during 1997. In fact, the number of ceramic tile producers currently in operations is quite high, resulting in them having to operate below installed capacity levels and to face tough market competition.

Distribution and marketing

Every ceramic floor/wall tile producer adopts the same pattern of domestic distribution and marketing. They sell their products both directly to end-users and indirectly through distributors, agents, and retailers.

They deal in direct selling when serving large-scale buyers such as developers of office buildings, real estates, hotels, and shopping centers, and they use distributors, agents, or retailers to serve small- and medium-scale buyers.

Certain producers leave all its distribution and marketing activities to distributors. One example is PT Senrico Djaja Marmer Industries, which market its ceramic tile products under brand name "Super Italia." PT Senrico uses PT Sumber Cipta Keramika Utama as its sole distributor, which supervises all the domestic distributors of "Super Italia" ceramic tiles. PT Sumber Cipta Keramika Utama uses Jakarta as its base for distributing "Super Italia" ceramic tiles to all retailers in the area of Jabotabek (Jakarta-Bogor-Tanggerang-Bekasi). Its market targets are large-scale property projects which develop real estates, stations, office buildings, shop-houses, and apartment blocks.

Another ceramic tile producer which trusts all its distribution and marketing activities to a distributor is PT Mulia Keramic Indahraya, which uses PT Catur Aditya Sentosa as the sole distributor if its "Mulia Keramic" products for the area of Jabotabek. Meanwhile, PT Metropole uses PT Satya Langgeng Sentosa to distribute its "Roman" and "Royal" ceramic tiles.

Prices still unstable

Compared to wall tiles, floor tiles are in higher demand because they are consumed not only by large-scale property projects but also by simple houses, very simple houses, and individuals. Since the monetary crisis started in mid-1997, there has been a shift in the consumption of floor tiles by the real estate and office building sector, namely from the regular products to granito and marble products. Currently, floor-tile producers rely more on individual consumers (i.e. house owners) than on large-scale property projects to consume their products.

According to some information, the prices of ceramic tiles on the domestic market have remained volatile due to the fact the value of the rupiah is still unstable. Meanwhile, the pricing of ceramic tiles by producers is based on production cost and distribution cost. In the end, ceramic tiles differ in prices according to size, color, design, and strength.

Normally, a distributor obtains a 10%-20% discount from the producer, and a dealer or retailer sets its profit margin at 15%-20% of the purchase price. The retail price of ceramic tiles, namely the price that has to be paid by the end-user, is inclusive of a 10% VAT. Thus, a ceramic tile end-user has to pay 151% of the price set by the producer.

There are three quality categories of ceramic tiles on the market and they are as follows: first quality (spotless); second quality (defective); and third quality (with flaws in shape and design).

"Super Italia" ceramic tiles, which are produced by PT Senrico Djaja Marmer Industries and marketed through its distributor PT Sumber Cipta Keramika Utama, are sold at Rp 22,500 per square meter (on the truck at the project site in Jabotabek; OFT/once fired tiles) in the case of type M, first quality, size 32 cm x 32 cm and Rp 26,000 in the case of type G, size 20 cm x 20 cm.

Meanwhile, PT Satya Langgeng Sentosa --the sole distributor of PT Metropole Megah, which produces "Roman" and "Royal" ceramic tiles-- sells them at Rp 25,500 per square meter in the case of type A 22103, size 20 cm x 20 cm, Rp 27,500 in the case of size 30 cm x 30 cm, and Rp 42,500 in the case of 33 cm x 33 cm.

Table - 9 Prices of several brands of ceramic tiles, August 1998

                                                        Price
                                             Size        (Rp/
Producer                Brand       Type     (cm)     [m.sup.2])

Senrico Djaja       Super Italia      M     32 x 32     22,500
Marmer Industries                     P     32 x 32     23,000
                                      Q     32 x 32     26,000
                                      G     20 x 20     23,000
                                      H     20 x 20     24,000
                                      J     20 x 20     25,000

Setya Raya          Roman & Royal   22103   20 x 20     25,500
Keramindo/                          20104   20 x 20     26,500

Metropole                            3302   30 x 30     27,000
                                     3349   30 x 30     27,000
                                    36203   33 x 33     42,500
                                    44004   40 x 40     49,000

Source: Data Consult

Domestic consumption down 12.8% in 1997

Figures on the national consumption of ceramic tiles are obtained using the following formula: national consumption = production + imports - exports, with the assumption that domestic production for a given year is totally consumed in the same year. For 1993, the domestic consumption of ceramic tiles is estimated at 114.1 million square meters, which rose by 16% to 152 million square meters in 1995.

In 1996, domestic ceramic tile consumption still grew albeit more slowly than it did in the previous years, i.e. by only 5%. One major reason for this was the fact that the domestic supply was already high with the continued expansion of the ceramic tile industry's production capacity. Following the outbreak in mid-1997 of the monetary crisis, the construction sector (which deals in the development of property, real estate, and other construction projects) slumped and has continued to be sluggish since then. In practice, therefore, ceramic tile producers now rely on the retail market, which is composed of house owners, to consume their products. However, the capacity of this market segment to absorb ceramic tiles has also declined with the people's weakened purchasing power. In 1997, the domestic consumption of ceramic tiles reached an estimated 140.2 million square meters, down 12.8% from the previous year.

Table - 10 Estimates of Indonesia's ceramic tile consumption, 1993 - 1997

Year     Consumption      Growth
       ('000 [m.sup.2])    (%)

1993       114,155           -
1994       131,164         14.9
1995       151,970         15.9
1996       160,784          5.8
1997       140,190        -12.8

Average growth              5.9

Source: Data Consult

Prospects

Due to the prolonged monetary and economic crisis, which began in mid-1997, the domestic demand for ceramic tiles has been on the decline. In 1998, it is expected to decrease even more rapidly, namely by 30%, with the collapse of the construction sector and the shrinking purchasing power of the people.

The current economic woes have made the future of Indonesian economy difficult to forecast. The same crisis has affected various aspects of the nation's life, including the political aspect. However, the recent monetary development in which the rupiah started to strengthen against the U.S. dollar provides a good reason to hope that the construction sector will begin to return to normal in the year 2000.

Basically, Indonesia being a developing country, the domestic market has a high potential to absorb building materials, including ceramic tiles. In view of this, a good number of investors were once interested in entering the ceramic tile industry in Indonesia. In addition, foreign ceramic tile suppliers have also continued to eye the Indonesian market.

Up to now, not many Indonesian ceramic tile producers have started to orient themselves to the export market. With the sharp depreciation of the rupiah against the U.S. dollar, Indonesia theoretically has a good opportunity to increase its share in the international market for ceramic tiles. However, the competition on the export market for such products, especially the high-quality ones, is already quite tough. On the international market segment for medium-to-low quality ceramic tiles, Indonesia has to compete tightly with other developing countries, notably China.

Another problem which Indonesia's ceramic tile industry faces is the fact that glazing and coloring materials still have to be procured mostly from import sources. Besides, the basic materials that are found in abundance in Indonesia usually have non-standard quality. Apart from this, the supply of Indonesian nationals skilled in the techniques of ceramic tile production is also limited.