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Cement industry in Indonesia.

Current Issues

Foreign control of cement industry in the country has become a hot issue in public debates in the past several years triggered by long dispute involving the government and Mexican cement giant Cemex S.A. over control of the country's largest cement maker PT Semen Gresik. Cartel issue was raised arousing nationalist sentiment that discourage foreign investors. Investors hesitated to invest to build new factories or expand existing capacity especially with the 100% hike in oil fuel prices in October, 2005.

After a fast growth in 2003-2005 period, observers predict that the existing cement factories, without capacity expansion, will not be able to meet fast growing domestic requirement by 2009-2010. By that years, the construction sector, which the largest consumer of cement, is forecast to grow 8% a year. Demand for cement, therefore, will rise necessitating expansion of production capacity.

It is no wonder that toward the end of 2005, many foreign investors indicated interest in building new cement factories in the country, and existing producers plan capacity expansion by building new production facilities.

The interest, however, was somewhat dampened by the government's decision to raise fuel prices in October, 2005, sending the prices of building material sky high and further weakening the purchasing power of the people. As a result demands for houses and other property fell sharply putting a brake on the rising trend of cement consumption.

The unexpected change forced all factories to make recalculation revising their expansion plans especially as the existing capacity is still more than enough to meet domestic requirement at present. Producers have to find right answer to question: whether new project is still feasible in the next five years.

Fear of cartel among foreign controlled cement companies remains a disturbing issue. Cartel is feared to hurt the interest of the people. After the government liberalized cement market, observers are worried that the prices of the building material could rise out of control. In addition, any time the domestic market could experience shortage in cement supply if the foreign owners choose to exports all or most of their cement production with the government has no control over them.

Competition in the cement industry has frequently been in the spotlight, a focus of attention especially from the competition watchdog, the Anti Business Monopoly Commission (KPPU), which has several times slapped sanctions on cement factories allegedly practice unfair competition. Last time KPPU punished state-owned PT Semen Gresik accused of restricting distributors and intervening in setting cement selling prices.

The oligopolistic characteristic of the market with only a few players in the cement industry, the tendency toward creating cartel is very likely to prevent themselves from killing each other. The general consumers will be hurt if the factories collude with each other to raise the cement prices. The fear, however, might prove unfounded. The fact is since the government liberalized the market, the producers have complained about tight competition in the market.

This report is compiled using data from in-depth studies of cement industry and analysis of issues surrounding the industry including the problems hampering its expansion. The report presents accurate data, information, results of analysis and market intelligence.

Economic background: Construction sector sensitive to changes in economy

After reeling under the impact of the monetary crisis in 1997/1998, marked with a Gross Domestic Products (GDP) contraction, the country's economy began to regain strength in 2000. The interest rates begin to fall enabling the property and construction sector to recover from a heavy slump.

A substantial growth of more than 5% was recorded in the country's economy in 2004 and the interest rate declined to 13% from 18% in the previous year. In 2004, the property sector was booming. New housing, apartment and shopping center projects emerged and development was brisk as if the condition had returned to what it was before the crisis hit the country.

Demand for cement, therefore, surged again. The government resumed construction of a number of major infrastructure projects, especially toll roads which were earlier shelved for financial difficulties.

The following table shows the interrelationship between economic growth and that of the construction sector. The construction sector is sensitive to GDP growth. When the country's GDP fell 13%, the construction sector shrank by 36% and on the contrary when the GDP rose 5% the construction sector surged by 8%.

Structure of Cement Industry

Type of cement and uses

Indonesia produces various types of cement. The main type is OPC (ordinary Portland Cement) or Portland Cement of Type I (CP I). Other types include special ones and mixed cement, for certain uses in relatively small quantity.

Those categorized in the special types are Portland Cement of Type II (CPI II), Portland Cement of Types III (CPI III), Portland Cement of Type V (CPI V) and OWC (Oil Well Cement). Those categorized as Mixed Cement are PPC, fly ash cement, and Super Masonry Cement (SMC) and Masonry Cement.

The government has set standards for the quality of cement products as given in SNI 15-2049-2004, which is the standard for portland cement of the I, II, II,IV, and V types. Standards for other types of cement have also been set by the government.

Types of Cement

Portland Cement of Type I or Ordinary Portland Cement (OPC) is a cement type with standard quality used widely for general construction such as building constructions which do not need specifications such as house buildings, high rise buildings, bridges and roads.

Portland Cement of Type II is a type of cement more resistant to sulfates. Portland Cement of Type II is used such as for port pier, dam and bridge constructions and heavy foundation of buildings in soil having moderate content of sulfates.

Portland Cement of Type III is used for constructions needed high early pressure after pouring a cement foundation in a fast process, such as in road, bridge and airport construction.

Portland Cement of type IV is used for constructions that need low hydration heat such as large dams, thick concrete buildings or buildings in dry areas.

Portland Cement of type V gives better protection against corrosion from water or soil containing sulfates larger than 0.20% such as sea water, ground water and water in mining sites. This type of cement is used for constructions of pools processing waste from chemical factories, sea building, etc..

Oil Well Cement (OWC) is used for oil and natural gas well constructions of certain depth. OWC is different from other types of cement as it will become hard if it is used for oil wells under high temperature.

Mixed Cement is a mixture of cement almost the same types and produced from limestone as an additive to mixture of crusts and gypsum in the final process of grinding. This type of cement is suitable for light and medium construction (semi permanent) such as houses and low cost buildings.

PPC (Portland Pozzolan Cement) is a mixture of cement using pozzolan as the material. It is suitable for sea beach buildings or buildings in swampy areas, dams and waterworks, that need resistance to sulfates and low hydration heat.

White Cement (CementPutih) is produced in the country only by PT Indocement Tunggal Prakarsa. It used mainly for terrazzo tiles, or for ceramic products and other decorative ornaments.

Composition of the products

Most cement factories in Indonesia produce Portland Cement of Type I or ordinary Portland Cement, which accounts for 88% of the country's total production of cement. Other types, mixed cement accounts for 11.6%, and the rest are made up of OWC, PC type II and Type V.

Semen Gresik Group the biggest cement producer

The monetary crisis that jolted the country in 1997/1998 opened the door wide for world's cement giants to expand their operations to the country by acquiring shares of existing cement factories. before the crisis, all cement factories in the country were owned by the government and Indonesian private companies. Before, 1980, there were only state-owned cement companies in the country.

Cement producers still owned by the state are PT Semen Gresik, PT Semen Baturaja, and PT Semen Kupang. The last two companies are small in capacity. Semen Gresik is a holding companies after it acquired PT Semen Padang and PT Semen Tonasa in 1995 before it became a publicly listed company later. PT Semen Gresik and its subsidiaries have a total annual capacity of 17.12 million tons or 37.2% of the country's total production capacity.

PT Semen Gresik Tbk.

PT Semen Gresik was established in 1953 with factory in Gresik, East Java. It started operation in 1957 with an annual capacity of 250,000 tons using wet process. The company later expanded its capacity by building new production facility in Gresik and Tuban. Now its factories still operational are located in Tuban called Tuban I, II and III with a total production capacity of 8.2 million tons per year.

PT Semen Gresik, apart from being a holding company, operates in cement bagging industry and distribution business and limestone mining. It also is an operator of and an industrial estate. Altogether it has six subsidiaries including PT Kawasan Industri Gresik, which operates the industrial estate, heavy equipment PT United Tractors Semen Gresik, cement bagging company PT Industri Kemasan Semen Gresik in Tuban, and two cement producers PT Semen Padang and PT Semen Tonasa.

Its main income, however, comes from its cement factories. In 2003, cement industry contributed 90% to its total income.

The oldest cement factory in the country is owned by PT Semen Padang, which was established in 1910. Originally it belonged to a Dutch company before it was nationalized in 1958 to become a state company. Now it has four factories altogether with an annual production capacity to 5.24 million tons.

PT Semen Tonasa in Makassar, South Sulawesi, has three factories altogether with an annual production capacity of 3.48 million tons. Semen Tonasa and Semen Padang make PT Semen Gresik the largest cement producer in the country.

Dispute with CEMEX

When the crisis was at its height in 1998, major cement producers including PT Semen Gresik, PT Indocement, and PT Semen Cibinong faced financial problem because of large debt in foreign exchange. Debt restructuring, therefore, was needed handled by the Indonesian bank rescuing agency BPPN, which took over the non performing debts. As a consequence the agency took control of some of the shares of the indebted companies. Later the shares were offered to foreign investors. As a result, PT Indocement fell to the hand of Heidelberger Zement from Germany, PT Semen Gresik was 25.53% owned by Cemex of Mexico, and PT Semen Cibinong is controlled by the Holcim Group, which later renamed the company with PT Holcim Indonesia.

The acquisition of part of PT Semen Gresik by CEMEX is not going as smooth as is in the case of Indocement and Semen Cibinong. The dispute came after the government failed to honor put option agreement in the contract which allows the Mexican cement giant to buy more stake and become a majority shareholder of Semen Gresik whenever it wants.

Cemex brought the case to an international arbitration court. The case remains unsettled until now. Lately Cemex seems to give up relying on its legal battle and indicates its agreement to out of court settlement. Early March, Cemex announced its plan to sell its stake in Semen Gresik and opted to build a new cement factory as suggested by the government.

The move by CEMEX is seen by observers as the best way serving the interests of both sides as the price of Semen Gresik now has climbed to a peak level. Cemex bought the stake only at US$ 1.38 per share in September 1998. Now the price at the Jakarta Stock Exchange is more than doubling at around US$ 2.83. In early April, 2006, Cemex Asia Holdings offered to sell its 25.53% stake in PT Semen Gresik at US$ 500 million or US$ 3.3 per share.

PT Semen Cibinong Tbk/ PT Holcim Indonesia Tbk.

The first privately owned cement factory in the country is that of PT Semen Cibinong, which was established in 1971. The company became a public company in 1977. In 1993, it acquired the factory of PT Semen Nusantara in Cilacap adding the number of its factories to 4 units in Narogong, Bogor (West Java) and two units in Cilacap, Central Java, altogether with an annual production capacity of 9.7 million tons making it the third largest producer in the country in 2005.

In 2001, as a result of financial problem in the wake of the monetary crisis in 1997/1998, the majority stake of PT Semen Cibinong were acquired by Holcim Participations (Mauritius) Ltd.(Holmau), one of the world's cement giants. In 2004, the stake was transferred to its parent company Holderfin BV, which changed the name of Semen Cibinong with PT Holcim Indonesia Tbk.

PT Indocement Tunggal Prakarsa Tbk.

PT Indocement was established in 1975 by the Salim Group, then was billed the biggest conglomerate in the country. Its first factory was built in Citeureup, Bogor. Later in 1985, a number of other cement factories built by the company group were put under the management of PT Indocement Tunggal Prakarsa (ITP).

After the completion of its 12 (sup.th) production facility in 2002, its production capacity rose to 15.65 million tons a year. Nine of the factories are located in Citeureup, Bogor, 2 units are in Palimanan, Cirebon also in West Java, and another unit is Tarjun, Kotabaru, in South Kalimantan.

PT Indocement is one of the subsidiaries of the Salim Group, taken over by BPPN in compensation of a debt of the conglomerate. BPPN later offered the asset to foreign investor. Now it is 65.14% controlled by the German-based Heidelberger Zement.

PT Semen Andalas Indonesia

Another world's giant Lafarge from France made its presence in the country earlier in 1982 through PT Semen Andalas Indonesia in cooperation with IFC. Its factory was located in Lhok Nga, Aceh with an annual capacity of 1.4 million tons. In 2004, the factory was virtually demolished by earthquake tsunami. Lafarge plans to rebuild the factory this year. With Andalas out of business, its cement customers mainly in northern part of Sumatra are supplied by Lafarge's cement factory in Malaysia.

PT Semen Bosowa Maros

Now the only Indonesian private company operating in cement industry is PT Semen Bosowa Maros with factory in Maros, South Sulawesi The company is a subsidiary of the Bosowa group, a medium conglomerate controlled by H. Muhamad Aksa Mahmud, a businessman from South Sulawesi.

Its factory started operation in 1998 with an annual production capacity of 1.8 million tons.

PT Semen Kupang

PT Semen Kupang started operation in 1984 with an annual production capacity of 270,000 tons. The factory is important to supply cement for eastern Indonesia, therefore it is maintained although it is not efficient with the small capacity. Now the company its capacity has been expanded to 570,000 tons a year.

Financial problem, however, forced the company to stop operation in February, 2005. During the crisis, the company had a non performing debt to state owned Bank Mandiri. Later the debt was converted into equity making Bank Mandiri a 59% owner of the company.

The problem, however, was not entirely resolved with the debt restructuring. After PT Semen Kupang built its factory with a loan of Rp1259 billion from Bank Mandiri it was not getting healthier. The company continued to be in the red. The process of production was hampered and finally it stopped operation. Until now it is not known how the problem surrounding the company is to be solved.

PT Semen Baturaja

The factories of Semen Baturaja are located in three different areas - in Baturaja, Palembang and Panjang, Lampung. The one in Baturaja produces clinker as it is close to lime stone mines as source of feedstock and coal mines as source of fuel. The clinker it produces is sent by train to Palembang and Panjang to be processed and mixed with gypsum to turn out cement. The cement will then be packed in a packing plant Palembang and Panjang are chosen as they are close to the market.

When it came on line in 1986, Semen Baturaja had only an annual production capacity of 500,000 tons, but in 2000, its capacity was expanded to 1.25 million tons until now.

Production Capacity down

The annual production capacity of the country's cement industry grew fast from 27.33 million in 1996 to 47.49 million tons in 2004. The highest increase was recorded between 1996 and 2002 to follow the operation of a number of new factories.

Although the growth of domestic consumption was slowed by the crisis in 1998, the country's installed capacity has continued to climb with the operation of new producers such as PT Semen Bosowa Maros in Maros, South Sulawesi with an annual production capacity of 1.8 million tons. Almost at the same time Semen Gresik started the operation of its third production unit in Tuban called Tuban III (October), followed by the fifth units of Semen Padang called Indarung V (November), each with an annual capacity of 2.3 million tons.

In 2000, PT Indocement completed the construction of its 12th production unit in Tarjun in Kalimantan with an annual capacity of 2.45 million tons. In 2001, the unit II of Semen Baturaja with an annual capacity of 600,000 tons started operation bringing the company's total capacity in 2002 to 1.2 million tons.

Kupang has also expanded its production capacity from 270,000 tons to 570,000 tons. The company has operated at full capacity and 52% of its production is disposed of on the domestic market and the remaining 48% is exported. In the period from 2002 to 2004, no increase in the country's cement production capacity. In fact the capacity declined in 2005 with Semen Andalas in Aceh destroyed by tsunami in December, 2004.

Most cement factories are located in Java

Factories in Java account for 30.4 million tons or 64% of the country's total production capacity of 47.49 million tons. Sumatra's production capacity is 7.89 million tons, Sulawesi 5.28 million tons, Kalimantan 2.45 million tons and Nusa Tenggara 0.57 million tons a year.

Most producers are located in Java and Sumatra as the two islands are the largest and second largest consumers of cement in the country and also rich with deposits of cement material such as limestone.

The country's largest producer the Semen Gresik Group has factories located in three regions--PT Semen Padang in West Sumatra supplying cement for Sumatra, PT Semen Gresik has factories in East Java supplying cement for Java and NusaTenggara and PT Semen Tonasa in South Sulawesi supplying cement for eastern Indonesia.

PT Indocement also has cement factories in different areas - Cibinong, Bogor of West Java, and Palimanan, Cirebon, producing cement for western Indonesia and partly eastern Indonesia. Its cement factory outside Java is found in Tarjun, South Kalimantan. The factory in Tarjun was originally owned by a Korean company PT Kodeco and the only factory in Kalimantan. Kalimantan is a new developing area and its cement consumption grew fast in the last five years.

PT Holcim the third largest cement producer, has cement factories in Narogong, West Java and Cilacap, Central Java. These areas are the main markets for Holcim products.

In Sulawesi there are two cement plants operated by PT Semen Tonasa and PT Semen Bosowa Maros. The factories serve not only Sulawesi area but also other areas in Eastern part of Indonesia.

Cement factories and locations in Indonesia

The following table shows locations of cement factories by provinces and production capacity.

Some of the old factories may no longer be in operation such as Indarung I of Semen Padang. Indarung I started operation in 1913, but the factory which operated with the wet process is no longer operational as it is no longer efficient. Now Semen Padang operates only its unit II, III, IV and V. Indarung I is used only to produce cement of special type in limited quantity.

Production growth slowing again

Cement production has continued to increase since 1996, but not as fast as the production capacity. In 1997-1998, for example, production capacity expanded by more than 20% annually, but production increased only by 11% in 1997. The production even declined 18% in 1998.

The country's cement production has increased by only 4.1% annually in the past 10 years as against expansion of production capacity by 6.6%. The crisis did not cause serious setback in production as producers managed to increase their exports to make up for a decline in sales on the domestic market. Production grew significantly faster in 2003 through mid 2005 to follow growing demand in the country. During that period cement requirement rose with the revival of the property sector marked with the brisk development of shopping malls, apartments and real estates.

In 2005, increase in production slowed growing only by 2.1% as one of the country's major producers PT Semen Andalas was hit by tsunami, which destroyed its factory. That year consumption continued to rise by 4.2%.

In the first quarter of 2006, production growth was estimated to be zero as a result of the 10% hikes in the prices of oil fuels. The fuel price hike in October, 2005 resulted in a slump hitting the property market and many property projects were shelved. Demand for cement, therefore, declined. From the property sector.

Meanwhile, cement factories suffered an increase in production cost. The increase in the price of industrial diesel oil forced PT Semen Cibinong (Holcim) to stop operation one of its Cilacap factories, which has an annual capacity of 1.5 million tons. The company plans to use electric power from PLN as it has become cheaper than oil fuel.

It is estimated that cement consumption in the country will rise again only in the second half of this year after the government's ambitious program in infrastructure development has been implemented, The improvement in macro economic condition in Mach is expected to lead to a cut in interest rate and boost development of the property sector.

Bowing to the public demand including from the business sector, the government has also decided not to raise the electricity tariff. The decision is expected to boost the business sector and prevent further weakening of the purchasing power of the people. The strengthening of the rupiah and stability in the oil prices, are expected to revive the property sector and as a result demand for cement will increase.

With production at 33.92 million tons the capacity utilization of the country's cement industry was 74% in 2005.

Semen Gresik Group produced 15.99 million tons

Cement production in 2005 grew slower than in the previous years. However, producers could still increase their production in 2005 with the exception of PT Semen Andalas and PT Semen Kupang.

The country's largest producer the Semen Gresik Group produced 15.99 million tons in 2005 followed by PT Indocement Tunggal Prakarsa with 10.63 million tons. Cement plants of PT Semen Gresik in Tuban utilized almost full capacities ( 96% of their capacities). The same situation occurred at PT Semen Padang which utilized 93 % of its capacity

PT Semen Andalas has virtually been scrapped until new factory has been built and start operation. According to plan, construction of its new factory will start in 2006. Currently, the government allows PT Semen Andalas to import cement from Malaysia, supplied by an affiliate under Lafarge.

Lafarge plans to rebuild the factory in the same location this year. The government, therefore, licenses PT Semen Andalas to import cement from affiliate in Malaysia.

The decline in supply of cement in Sumatra following the destruction of Semen Andalas, prompted PT Semen Padang in West Sumatra to increase its production. In 2005, Semen Padang raised its production to 5.1 million tons from 4.6 million tons in 2004.

PT Semen Kupang stopped operation in February, 2005 as it could not make up for the increase in production capacity with the rise in the prices of iron sand, coal, gypsum, diesel oil and cement sacks. Mismanagement was suspected to have been behind the poor performance of the company which is burdened with Rp500 billion debt. In 2005, its production totaled only 69,000 tons as against production capacity of 570,000 tons.

Most factories produce portland cement of type I

Most cement factories in Indonesia produce portland cement of Type I. Other types they produce include Mixed Cement by PT Semen Padang, PT Indocement, PT Semen Gresik, PT Semen Tonasa and PT Semen Bosowa. This type of cement is cheaper in price and it is suitable for buildings with light construction.

Mixed cement, however, is not produced regularly as demand for which is small. In 2005, PT Semen Padang was among the main producers of cement other than PC of type I and mixed cement. PT Indocement, which is known as a producer of white cement, did not produce it in 2005.

Technical Aspects

All Cement Plants use Dry Process

There are two methods of producing cement namely wet process and dry process. The differences between the two processes lies in the mixing process and grinding of the basic materials before being sent to rotary kiln where it is heated. In the dry process, mixing and grinding are in dry condition, and in the wet process the basic materials are mixed and ground in wet condition.

The wet process needs greater largest energy as it needs more calories for drying and heating up to a temperature of 1450 oC. Factories needing the wet process such as those of Semen Padang are no longer used as they are no longer efficient.

At present, all cement producers operate only their dry process cement plants and close their wet process plants. The Indarung I, the oldest cement plant of PT Semen Padang using wet process, was still operated in 2005 only to produce other type of portland cement in small quantities.

Roughly the dry process of producing cement is as follows.

Preparations of materials

Basic materials in the form of clay, silica, and iron sand are dried first in a drying equipment to reduce the water content to as low as 2%-3%. After that together with the limestone, which is already pulverized, the mixture is sent to basic material silos.

Grinding of Basic Materials

From the storage places, after being weighted to have a proportion quantity the basic materials are fed to the grinding machine where at the same time they are dried. After being pulverized the materials are put into mixing silos where the materials are mixed homogenously before being sent to the kiln feeding silos.

Burning:

From the feeding silos, the materials are fed to early heating machine and then to the rotary kiln to be heated at a temperature of 1.350oC - 1450oC. Clinker will be turned out after being cooled down.

Final Grinding:

In the final grinding, the clinker mixed with gypsum is ground together to turn out cement. The end product is then moved mechanically to storage silos.

Bagging and Transportation :

Cement is filled into sacks made of kraft paper by a bagging plant. Each is around 40Kg-50kg in weight. The cement in sacks is loaded into trucks, railway trains or ships to be sent to market or distributors and retailers in the regions.

Economies of scale more than 1.5 million ton p.a.

Most cement producers have more than one factory in one location. Generally expansion units have larger production capacity as larger capacity factories are more efficient.

In the 1980's a cement factory would reach economy of scale if they had production capacity from 500,000 - 1 million tons a year, but now a factory will be feasible only when they have an annual production capacity of 1.5 million tons.

Many cement factories in Indonesia built after 1996 have an annual capacity of more than 2 million tons or 7,500 tons per day to reach new economic of scale in cement industry. See the following table.

Contractors and technology providers

New generation cement factories of the Semen Gresik Group use the technology of leading U.S. engineering company F.L.Smidth-Fuller Engineering, which has built many cement factories.

In 1991, Fuller Engineering entered Indonesia when it won a US$ 105 million contract for the procurement of machines for cement factory of Tuban I of PT Semen Gresik with an annual production capacity of 7,800 tpd (ton per day) or 2.5 million tons per year. The factory which started operation in 1994 cost around Rp 645 billion.

After succeeding in supplying machines for Tuban I, the U.S. companies was asked by PT Semen Gresik to supply the technology for its other factories in Tuban.

Semen Gresik subsidiaries PT Semen Padang and PT Semen Tonasa also use the technology of Fuller Engineering in building their new factories. Three of four factories of PT Semen Padang still in operation were built with the technology of the U.S. company.

Fuller is also involved in the construction of the cement factory in Tarjun, South Kalimantan, formerly owned by PT Kodeco, later acquired by PT ITP. The main machines of the factory which has a daily capacity of 7,500 tons were supplied by Fuller.

In 1996, Fuller was the main supplier of cement factory machines and equipment for PT Semen Bosowa Maros valued at US$ 65 million. PT Semen Bosowa named Daewoo Corp as the main contractor for the turn key cement project. Earlier PT Semen Bosowa signed a contract with Fuller but for some financial problem, the project was handed over to Daewoo Corp but Fuller remained as the main supplier of the machines and technology.

Fuller was also involved in the procurement of machines and technology for the construction of factories of PT Semen Tonasa (Unit IV) , PT Semen Cibinong in Narogong and PT Semen Nusantara in Cilacap, which was later acquired by PT Semen Cibinong.

Other contractors which have been involved in the construction of cement factories in the country include Kawasaki Heavy Industry from Japan, and Daewoo Corp. and Hyundai Heavy Industry from South Korea. Kawasaki Heavy Industry built the XI factory of PT Indocement Tunggal Prakarsa (ITP) in Citeureup in 1996 with a production capacity of 7,500 tons per day or 2.5 million tons per year. Earlier Kawasaki took part in the construction of the first factory of Semen Baturaja in 1980.

In 1992, Hyundai Heavy Industry (HHI) became the contractor for the third factory, a turn-key project of PT Semen Cibinong in Citeureup with an annual capacity of 1.5 million tons . Later HHI took part in the construction of a cement factory of PT Semen Bosowa Maros and one of PT ITP in Citeureup in 1997

Basic Materials

The composition of basic materials is different depending on the quality of the materials (the quality of limestone depend on calcium content) and types of cement to be produced (limestone is used more for Masonry cement than for OPC). The intermediate product of cement is clinker that has to mix with gypsum to produce cement.

On average, approximately 960 kg of clinker and 40 kg of gypsum are used to make one ton of Ordinary Portland Cement (OPC). Clinker is composed of limestone making up 80%, clay accounting for 15% , silica accounting for 4% and iron sand 1%.

Indonesia has large reserve of limestone, found almost in all parts of the country. The largest reserves are found in West Sumatra. In Java limestone deposits are found in West Java in the. regencies of Bogor, Sukabumi, and Cirebon. In Central Java, the largest deposits are found in the regencies of Grobogan, Wonogiri, Kebumen and Cilacap. In East Java, deposits are found in Tuban, the island of Madura, etc..

Generally cement factories are built near the deposits of the main basic material. Large deposits especially in areas having adequate infrastructure, in Java have been claimed by cement factories. Many other deposits in Java are yet untapped as road infrastructure is not available.

A factory generally has limestone deposits enough to feed it for 50-75 years.

Cement industry consumed 5.5 million ton of coal

Cement industry is a big consumer of energy. Therefore, the availability of energy with reasonable prices is a determinant factor for the feasibility of a cement factory project. For example, Indocement needs 1.8 million tons of coal and 1.3 billion kwh of electricity a year to produce 11.3 million tons of clinker.

The soaring prices of oil fuels forced all cement factories to change their fuel with coal. However, now the price of coal has shot up and coal will need high handling cost including storage cost. The fact that many cement factories located far from coal mines or suppliers becomes a major factor added to production cost.

In 2005 total coal consumption was 5.5 million tons or increased for more than 16% than that in 2004.

Energy is needed not only in the process of burning as a cement factory also needs large supply of electric power for operation. Many cement factories, therefore, build their own power plant.

The increase in the oil fuel price has forced PT Holcim to stop the operation of its Cilacap factory as its power plant uses oil fuel.

Investment Plans

Semen Gresik Group to build new cement plant

Lately cement market is declining but observers said it was only a temporary setback. They believed demand for cement will increase in mid and long terms.

The potential market is still a major factor attracting investment in cement industry. It is not easy, however, to take advantage of the potential market amid the tight competition. Under the present condition when the market is declining, producers continue to seek expansion with the good mid and long term prospects. They don't want to get too late when the market has revived as once they lose the market foothold it would take time and will cost a lot of money and energy to regain it.

Any additional capacity or construction of new factories will result in tighter market competition, especially as new factories will most likely be built with lager production capacity with the increase in the economic scale of factory now more than 1.5 million tons in annual capacity. Getting late in entering the market will mean tougher days ahead to secure a market share.

There have been 17 companies holding the license to build new cement plants. In 1997, BKPM issued more than 10 licenses for new factories, but until now none of the licensees has implement its project. PT Semen Grobogan, for example, planned to build a factory in Semarang with an annual production capacity of 2.3 million tons. It was quite serious in implementing its project but the monetary crisis forced to shelve its project. Similarly, PT Semen Gombong had a plan to build one in the regency of Kebumen in Central Java, but the same financial problem forced the subsidiary of the Medco Group to put off its plan.

Source at the industry ministry said there are four licensees looking set to carry out their projects namely PT Mega Bukit Barisan in North Sumatra, PT Lebak Harapan Makmur in Banten, PT Balocci Makmur in South Sulawesi and PT Semen Batam in Batam each with an annual production capacity of 1.5 million tons. No date, however, has been given when construction will start for the four projects.

A Chinese company, China Kenyon T & D said it will team up with PT. Teknowell Indonesia to build cement factories in West Sumatra at a cost of Rp 250 billion. The two partners plan to build five units of cement factory in five areas in West Sumatra each with an annual production capacity of 250,000 tons or altogether with a total production capacity of 1.25 million tons. The cement factories will be built in the regencies of Pasaman Barat, Dharmas Raya, Solok, Pesisir Selatan and 50 Kota each to cost around Rp 50 billion.

Additional capacity both from new and expansion units is more possible by the existing producers such as PT Indocement Tunggal Prakarsa Tbk, which plans optimization of its 8th factory with a cost of US$ 20 million. With the optimization project, the company will have an additional capacity of 600,000 tons in 2006.

The Semen Gresik group is preparing feasibility study for a new cement factory with an annual capacity of 2.5 million tons. The location is yet to be decided . The project will cost an estimated Rp 3.5 trillion - Rp 3.6 trillion (US$ 350 million-US$ 400 million). The plan for capacity expansion is urgent as both PT Semen Gresik and PT Semen Padang are already operating at more than 90% of their respective capacity that they could not meet any increase in demand expected in the coming years.

PT Semen Andalas, before its factory in Aceh was destroyed by tsunami late 2004, planned to build a cement factory near Medan, but later it changed the plan with one to rebuild a factory in the same location in Aceh most likely with a higher production capacity.

The cost of building a cement factory in a location where infrastructure is not yet available, is around US$ 145 per ton capacity. The cost for one in area already having infrastructure is around US$ 100-120 /ton capacity. That means the cost of building a factory with an annual capacity of 2.5 million tons is around US$ 250 million to US$ 300 million.

Exports slowing down

In 1998, cement exports rose in the wake of the monetary crisis. Producers increased exports to make up for a decline in sales on the domestic market. Meanwhile, production capacity was already expanded. Exports were more profitable with the fall of the rupiah as Indonesian export commodities including cement became more competitive in international markets.

In 1999, cement and clinker exports totaled more than 9 million tons making the country the second largest exporter of cement in the world.

Cement exports started to climb in 1998. Earlier cement exports were regulated by the government. Exports were allowed only when there was surplus on the domestic market. Starting 1998, exports were allowed but priority in supply remained for domestic consumption

Cement exports slowed down in 2005 due to the increase of domestic demand in 2004 and 2005 before the government raised the fuel price in October 2005.

The largest countries of destination for the country's cement exports are Bangladesh, Singapore and Sri Lanka, in Asia and Nigeria and Ghana. In Africa. Other countries of destination include Australia and New Zealand to which exports have also increased from year to year.

After foreign giants took control of major cement producers in the country the cement companies are no longer free to export cement. Exports are controlled by the foreign giants in line with their global strategies.

Generally the multinational companies already have their respective market foothold supplied by their factories in various countries. Their subsidiaries in Indonesia are not free to export cement to a certain country where they already have factories. Exports, therefore, are regulated by the head office not by the producers.

Demand Aspects

Domestic Consumption reached 31,47 million tons

Domestic consumption of cement has continued to increase after the crisis in 1998. In 2002, domestic consumption already reached the level recorded before the crisis hit the country. The consumption continued to climb until 2005 especially with the revival of the construction industry marked by the emergence of new shopping malls, apartments towers and new housing complexes.

Following the October's oil fuel price hikes, the property sector was hit by slumps resulting in a decline in demand for cement. It is estimated that the property and construction sectors could not yet fully recover until the second half of 2006. Demand for cement, therefore is expected to rise again in the second semester of this year.

Indonesia's per capita consumption of cement is relatively low compared to per capital consumption in other ASEAN countries. Currently, Indonesia's per capita consumption is around 143 kg per year, almost the same as in 1997. Malaysia's per capita consumption was 450 kg in 2004 and that of Thailand was 417 kg and Vietnam's per capita consumption was 298 kg. Therefore, the country is still a highly potential market.

Consumption in Java and Sumatra totaled 26.6 million tons or 83,1%

Java and Sumatra, where economic development is brisker, are the largest and second largest consumers of cement by islands.

In 2005, cement consumption in Java totaled 19.65 million tons and in Sumatra totaled 6.95 million tons or respectively 62.5% and 20.6% of the country's total consumption of 31.47 million tons.

Kalimantan, Nusa Tenggara and eastern Indonesia have recorded a high annual growth in cement consumption in the past 5 years. The annual growth averaged 13.86% in Kalimantan and 22.7% in eastern Indonesia per year.

Consumption for the housing sector increased

Based on data available from cement producers and traders, the housing sector is by far the largest consumer of cement in the country, accounting for 82.7% of the country's total consumption.

There was a change in the cement consumption pattern after the 1997/1998 crisis in the country. Before the crisis, there were many giant projects financed by the government and the private sectors needing large supply of cement. After the crisis, the number of large projects is fewer.

In 2004-2005, demand for cement rose following the revival of the property sector marked by many housing projects built by both developers and individuals. Consumption for the housing sector, therefore, increased compared with that for infrastructure projects.

Characteristics of consumption

Loyalty to brand among cement consumers is high in certain areas. For example, Tiga Roda of Indocement has premium prices in West Java, Banten and Jakarta mainly because of high loyalty of consumers. In East Java, Semen Gresik has loyal consumers allowing it to maintain market domination with high price facing other brands. Such characteristics are shown for cement sold in sacks that show the brands.

Cement quality has been standardized in the country by the government, therefore, there is no significant difference in the quality of all brands. Nevertheless, consumers tend to keep loyalty to a certain brand, and producers continue to spend large money to advertise their products.

Construction workers also play importantly in determining the loyalty of consumers or project owners to a certain brand. The workers could influence the consumers especially small consumers into using a certain brand they want.

Contractors or owners of large projects, however, have little loyalty to brand. They are more interested in the prices, system of payment, availability and other related factors. They will use one offering cheaper prices as the know the quality is more or less the same. Therefore, competition could involve all brands as long as they all meet the specifications and payment terms demanded by the buyers.

Consumers in area near a cement factory usually have high loyalty to the brand used by the factory. The loyalty is also caused by the fact that cement could not be kept too long before being used as the quality could decrease. Cement needs special place to keep it from being damaged such as by wet or damp environment. Factories and distributors, therefore, use large storage facility such as silos for cement in bulk and warehouses for cement in sacks. With such characteristics cement factories closer to market will have an advantage in lower operating cost and distribution costs.

Marketing Aspects

The market is dominated by three large groups

The market structure in the country is still oligopolistic with only a few producers. The market is dominated by three large groups namely the Semen Gresik (SG) Group, PT Indocement Tunggal Prakarsa, and Holcim Indonesia. The Semen Gresik group which also includes Semen Padang and Semen Tonasa has a market share of 45.3% (Semen Gresik 25.1%, Semen Padang 12.3% and Semen Tonasa 7.9%).

The closest rival of the SG Group is PT Indocement Tunggal Prakarsa (PT ITP), which has a market share of 29.7 %, followed by PT Semen Cibinong or PT Holcim Indonesia, which has a market share of 15.2%.

The SG Group and Indocement, which have a number of factories outside Java have wide marketing coverage selling their products almost in all parts of the country. Other producers generally have limited marketing coverage to area around their factories. For example, PT Semen Andalas Indonesia (PT SAI) distributed its production only in northern part of Sumatra, Riau, and Riau islands. PT Semen Baturaja (PT SB) and PT Semen Kupang (PT SK) also distribute their production in around the areas where their factories are located.

PT Semen Bosowa Maros (PT SBM) has relatively wide marketing coverage although it has only one factory in South Sulawesi. Its marketing areas cover eastern Indonesia, and Java and Sumatra in western part of the country.

Distribution system is crucial in cement marketing as cement needs large space and it could not be kept too long, therefore it needs certain storage facility.

Large supply of cement will need distribution infrastructure to guarantee that delivery is as scheduled and the quality could be maintain during transportation.

Consumers would not want to have to keep cement too long before being used as it will could cause damage or decrease in quality. The quality of cement could easily be affected. It could easily turn hard if kept too long especially under damp environment.

Supply and availability of supply to project being built is also important . Delay in supply when the process of mixing cement with other concrete materials like gravels and sands is taking place, could reduce the quality of a building. Therefore, both factories and distributors need adequate and effective distribution facility and systems.

Distribution Channel

In general, the system of distribution of cement in Indonesia is more or less the same made up of main and regional distributors, sub-distributors, retailers and wholesaler outlets. PT Semen Gresik has 18 distributors supported by subdistributors in heir respective areas. In the Jabotabek area, PT Semen Gresik has 12 sub-distributors.

One of the largest distributors of PT Semen Gresik is PT Variasi Usaha, which also handles the transport of more than 40% if Semen Gresik production.

Distributors play a vital role in marketing of cement, therefore factories generally have tight rules in distribution. A cement factory has contracts with its distributors to guarantee their loyalty. In order to secure control over its distributors Semen Gresik a set conditions to be followed by the distributors in their contracts.

A cement factory has a special section to deal with large consumers like industrial projects. It will decide whether supply is to be made through the head office or representatives. Some factories name a special distributors to deal with large consumers. However, the decision is based on a recommendation from the representatives. The factory will studies cement procurement for the consumers to set the prices and system of distribution. If he consumers are considered potential for long term interest, factories usually offer special treatment in price and procurement.

Distribution facility

To facilitate distribution, many cement factories use supporting facilities such as special ports, fleets of land transport, sea transport for bulk and cement in sack, bagging plants and bulk storage.

Packing plant is important for wide marketing coverage. For example, PT Semen Tonasa has a number of packing plants such as in Makasar, Palu, Banjarmasin, Samarinda, Bitung, Ambon, and Bali. Each plant has bagging capacity of 100 tons per hour. PT Semen Padang has its packing plants in Medan, Batam, Jakarta in addition to one in Teluk Bayur, Padang.

PT Semen Gresik, however, has no packing plant other than the one in its factories as distribution to Central Java, East Java and Jakarta is made over land in sacks. The transport of its cement in sack is handled by its own subsidiary PT Varia Usaha, which is also its distributor.

PT Semen Gresik arranges the process of the shipments of its cement in sacks and set the cost, but its distributors control the shipments of its cement in bulk and set the cost of shipment.

PT Indocement has since 2003, directly controlled its cement shipments in sack through its subsidiary PT Dian Abadi Perkasa. In order to facilitate shipment, it uses online cement delivery monitoring and tracking system that could monitor all transactions and the implementation of shipment.

In cement marketing, delivery time is especially more crucial. Buyers will not want delivery to be too early or too late as cement could easily be damaged if not properly put in storage facility.

PT Semen Baturaja is facing distribution problem. It now relies on the railway for transport. However, with limited carrying capacity of the railway in South Sumatra, Semen Baturaja has to restrain itself from increasing its output.

The factory has the capacity and basic materials and fuels are available in abundance but transport problem has come in the way of Semen Baturaja to expansion.

More than 80% of cement production is sold in sacks

Cement is sold in bulk and sacks of 50 kg or 40 kg. The consumers and distribution system of cement in bulk and sacks are different.

More than 80% of cement production is sold in sacks, which require larger distribution cost. Cement sack has extra cost in the packaging material and the transport cost is more expensive.

A cement producer has to offer its product at a cheaper price in area not traditionally its market area to attract buyers. For example, Semen Gresik 's product in sack is sold at lower price than that of Indocement as Jakarta has been known to be the market area of Indocement with its Tiga Roda brand.

There had been cases of false Tiga Roda brand used for cement produced by other companies in Jakarta.

The government has no more control over the price

The government has no more control over the price of cement since 1999 when cement trade was liberalized. The price is let to be dictated by the market. That year it happened that demand for cement plunged triggering price war with producers or distributors undercutting each other in price.

The price war recedes when demand increased, but price disparity is often sharp in among the regions. For example, in Jakarta the highest price was Rp 40,000 per 50-kg sack in 2005 with the lowest at Rp 38,000.

The highest price was recorded in Papua at Rp 50,000 per sack and the cheapest was in East Nusa Tenggara, where PT Semen Kupang is located.

In Jakarta, the price of Tiga Roda cement of Indocement is higher than those of other brands of Semen Kujang of PT Holcim Cement and Semen Gresik. The price of Semen Padang in Jakarta is much lower--as low as Rp 2,000 below that of Tiga Roda. Semen Gresik in 50-kg sack is sold in Jakarta at Rp 38,500-Rp 39,000 as against Tiga Roda 's price of Rp 39,000--Rp 41,000 per sack. Despite the higher transport cost, Semen Gresik has to maintain lower price in Jakarta to be remain competitive facing the market leader Tiga Roda. In Surabaya, however, Semen Gresik is the market leader sold at Rp 39,000--RP 41,000. per sack.

Competition and Strategies

After the liberalization of the market to follow the issuance of the anti-monopoly law in 1999 recommended by the International Monetary Fund (IMF), there is no more regulations on cement allocation, distribution and prices. The market is marked with tighter in competition. Some competitors seek to at least maintain their market foothold and others seek to grab a larger market share. Despite the oligopoly free competition is sharp as reflected by the price fluctuations and ambitious promotion campaigns.

Success in keeping low production cost is determinant in success in market competition. In a bid to keep production cost at the lowest possible level to be competitive in market, most cement producers have chosen dry process, which is more energy efficient and use coal as cheaper energy source, and find more efficient systems of distribution.

Price competition takes place mainly among distributors as they deal directly with retailers and consumers. Factory prices are relatively stable since 2000 after the market liberalization. For example, in West Java and Jakarta the price of Tiga Roda of Indocement is higher than that of Semen Gresik although they are equal in quality. Tiga Roda enjoys stronger demand on loyalty factor . In East Java, Semen Gresik is the market leaders and its price is higher than that of Tiga Roda also on the loyalty factor.

In East Java PT Semen Gresik adopts a tight rule to be followed by its distributors, which are allowed only to sell cement to retailers or regular buyers. The factory controls and set the prices to be followed by its distributors to prevent competition among themselves. The policy is successful in preventing competition among its distributors but it is opposed by the Commission for Business Competition Control (KPPU) as it is seen as an illegal practice violating anti monopoly law. Semen Gresik has to pay a fine for that.

In fact similar practice is covertly committed by other cement factories, but they do it more covertly. PT Indocement is the majority shareholder of its distributor PT Dian Abadi Perkasa, which is named to distribute its product in the country with the support of online cement delivery monitoring and tracking system , which allows it to monitor and control distribution and set stocks

Barrier to entry

Many prospective investors dropped their investment plans in cement industry because of barrier to entry that could not be easily overcome by new investors. The stumbling blocks include the high industrial scale difficult access to distribution networks, large capital requirement and time needed to win loyalty of consumers.

Economies of Scale

With the increase in production costs as a result of the oil fuel price hikes the profit margin is smaller amid the tight competition, a new factory has to be larger in production capacity to be feasible. Meanwhile, the present production capacity is not yet fully utilized. Therefore, multinational companies are the likeliest new investors to risk building new factories in the country . Those having coal mines, however, could also be potential investors in cement industry.

Access to distribution networks

Each producer has to establish their own distribution networks as it will determine success in their marketing drive. Therefore, new players in the business area could also come from among distributors. New players could also make entry through cooperation with the existing producers, which already have distribution networks.

PT Semen Gresik once had agreement with PT Semen Gombong on the marketing of Gombong cement in sack with the Semen Gresik brand. The agreement, however, failed to become a reality as the plan to build factory by Semen Gombong was cancelled. PT semen Andalas in the first years of its operation also had such cooperation with PT Semen Padang. Semen Andalas used sacks with the Semen Padang brand for its imported cement.

Large capital required

A cement factory is considered reaching an economic scale when it has an annual production capacity of 1.5 million - 2.5 million tons with an investment of US$ 130-145 per ton capacity. A new factory, therefore, will need an investment of around US$ 200 million - US$ 350 million. The amount is quite large hat few investors could afford to build new factory.

Brand loyalties

A new producers need to launch intensive promotional drives as it is not easy to attract consumers which already built up loyalty to a certain brand. Therefore, a new producer has to be ready to sell its product at a cheaper price.

Cement companies reported better financial performances

Cement producers in 2005 were generally better financially than in the previous year. An increase in cement prices and sales contributed to increase in profit.

The burden in the increase in production cost is largely carried by consumers by raising the selling prices.

PT Semen Gresik reported Rp 936 billion in net profit in 2005 or a 80% increase from the previous year. The company succeeded in sorting out its financial problem brought on by the monetary crisis. It is now financially healthy. Its share price has continued to rise. On April 13 the price of its share was recorded at Rp 25,500 per (US$ 2.83), up from US$ 1.28 when Cemex acquired part of its shares from the government in November 1998.

PT Semen Gresik is preparing a new investment in a new cement factory, which is estimated to cost US$ 350 million for one with an annual production capacity of 2.5 million tons. Semen Gresik already sets aside US$ 100 million from its own reserve.

The company needs capacity expansion as its factories already operate at high gear almost exhausting their production capacity.

PT Indocement also reported excellent performance with net profit climbing to Rp 739 billion in 2005 from Rp 116 billion in 2004. Currently Indocement is operating only at around 67% of its capacity. The more than five-fold increase in profit when capacity utilization is relatively low shows that the company has operated with high efficiency.

Indocement, therefore, still has idle capacity to use to meet growing demand without spending much fund in new investment for new facility. Indocement, however, still has problem to be sorted out namely large debts in foreign exchange which carry the risk of loss in exchange rate.

PT Holcim Indonesia also had a better going in 2005 posting an operating profit of Rp 119 billion although it still reported a net loss of Rp 334 billion mainly because of large payment for loan interest. The loss was much smaller than Rp 533 billion in 2004.

A substantial improvement in performance was also recorded by PT Semen Baturaja in 2005 when it reported Rp 17.48 billion in net profit as against only Rp 4.13 billion in 2004.

Supply and Demand Projection

Cement factories are facing a dilemma in their plan to expand capacity. Almost all cement producers have plan to expand their production capacity either through increasing the capacity of existing factories or by building new production facilities. Some of the producers already secured the license to build new facility and have carried out feasibility studies. Realization of their plans, however, is not as easy as expected. Early 2004, when consumption and production rose sharply, optimism was high and industrialists though that the country needed to expand capacity. They said with an annual increase of 8% in consumption, the present production capacity would not be enough to meet domestic requirement in 2009. It will take three years to build a cement factory, therefore, to forestall shortage in supply in 2009, many producers have planned new investment to build new factories.

When the oil fuel price rose and the property sector was in the doldrums early 2006, investors reconsidered their plan to invest in cement industry. With consumption growing at a snail pace, there is oversupply and larger idle capacity although no expansion in production capacity. Worse still is that a new factory now will need a larger annual production capacity of more than 2 million tons to meet the economic scale.

Before the oil fuel price hikes in October, 2005, cement consumption grew by 8% annually in the country. However, in the past year, cement consumption grew more sluggishly, slower than previously predicted. Assuming that the economy will expand only by 5.5% - 6% annually cement requirement is forecast to rise only by 4%-6% a year in the next 10 years.

The slow down in consumption will affect plan to build new factories or to expand the production capacity.

Low scenario

Using a scenario of low consumption growth of 4% annually, with assumption that cement exports (not including clinker) will average only 3.5 million tons a year, the country will need an additional production capacity of 2.5 million tons only in 2011. With that additional capacity the factories could operate at 92% of their installed capacity in 2012 . In 2015, the country will need additional capacity of 7.5 million tons.

High scenario

Using a scenario of higher consumption growth of 6% per year with assumption that cement exports (not including clinker) will average 4 million tons a year, the country will need additional capacity of 2.5 million tons in 2009. With that addition, factories could operate at 95% of their installed capacity in 2010. The additional capacity needed will rise to 17.5 million tons with capacity utilization of 95% in 2015.

The two assumptions show the difference in the time considered right to start embarking on new investment in cement industry.

Based on the assumption that the consumption will grow by 6%, the country will need additional capacity of 2.5 million tons in 2009. That means that work has to start in 2006 as it will take three years to build a new cement factory. However, if the consumption growth is only 4% based on the low growth scenario, the additional capacity will be needed only in 2011, therefore, the project will be feasible in 2008 and. work has to start that year.

It should be noted that based on the low scenario, the market is available only for three factories each with an annual capacity of 2.5 million tons by 2015. Meanwhile, there are more than 10 companies seeking expansion or planning new factories. The problem is that if all of the companies are to carry out their projects there will be large excess capacity . Many investors, therefore, have chosen to put off plan to build new factories in the country.

However, if the high growth scenario is to be the reality , those putting of their plan in 2006 will lose the opportunity to gain from an increase in demand for cement and the opportunity will be grabbed by importers or foreign suppliers.

Conclusion And Recommendations

Cement industry needs new investment

The country's cement industry is one of a number of economic sectors that have recovered amid lingering economic recession in the wake of the monetary crisis.

Cement producers have succeeded in easing their debt burden through restructuring. Meanwhile domestic cement market has recovered quite fast. Since 2004, cement consumption in the country has continued to increase. Not including PT Semen Andalas, which had its factory destroyed by tsunami,

only PT Semen Kupang was still beset by financial problem in 2005. Other cement producers reported an increase in sales and profit.

Since the end of 2005, the country's economy was in the doldrums as a result of the 100% oil fuel prices in October. However, cement industrialists are still optimistic that cement market will not take too long to recover. In fact, sales in January grew though slightly.

Increase is still expected in the country's cement consumption in the coming years although not as fast as in the previous year. In the next 5-10 years the country's cement consumption is forecast to climb 4%-6% annually. With the increase in demand, the factories will need to operate at full capacity to meet the requirement in 2009-2010.

To forestall shortage in supply in the coming years, additional capacity will be needed. Based on a scenario of low consumption growth, in the next 10 years the country will need additional capacity of 7.5 million tons. Based on assumption that the consumption will grow 6% annually, a capacity expansion of 17.5 million tons will be needed in the same period.

Assuming that a factory will have an annual capacity at 2.5 million tons, three new factories will be needed in the next 10 years based on the low growth scenario. The number of new factories will be 7 based on the high growth scenario. A factory will cost around US$ 350 million.

The size of the investment is a bottleneck in building the factories needed to prevent shortage in supply in the coming several years. Investors also consider the difficulty in grabbing a market share with the loyalty generally shown by consumers to certain producers they know. In addition the competition is tight including from imported products. Foreign suppliers are expected to move in fast to fill the gap any time between supply and requirement in the country.

In short term, new projects are expected to come from the existing producers such as PT Semen Gresik or Semen Padang, the capacity of which have been almost fully utilized.

New players will have greater chance of success in competition in areas where there have been no cement factory or where factories have not enough capacity to meet local requirement such as in fast growing regions of eastern and southern parts of Kalimantan.

A new investor will not only need to have large fund, but also wide distribution networks including bagging plants, warehouses and silos, land and sea transport facilities.

Risks and bottlenecks in investing in cement industry

Among the risks to be faced by investors in cement industry is growing fuel prices. The prices of oil and coal fuels, which constitute a big cost component, are difficult to predict.

An increase and decline in consumption also is determined by the purchasing power of the people as the largest cement consumer is housing projects, which are built for the general consumers. Many factors determining the purchasing power of the general consumers such as fuel prices, interest rates, inflation and rupiah stability.

Inadequate infrastructure to facilitate the transport of basic materials and cement production is a major factor hampering development of cement industry outside Java. Large funds will be needed to build infrastructure The government is strapped for cash. It has no fund to built infrastructure projects to facilitate industrial projects including cement industry. Investors may not risk spending more money for infrastructure.

Competition tighter and open

The competition is tight in cement industry as currently the production capacity far exceeds the domestic requirement. Therefore, despite the oligopoly in the cement industry, it is not easy now to form a cartel among the cement producers as in pre-crisis time. Each producer is concerned with maintaining its market share especially in area where it is a market leader enjoying premium prices. Meanwhile other cement producers are seeking to penetrate into new market areas by offering lower prices.

Something that causes concern is when producers have too much control over distributors, the producers could dictate the prices . Being few in number producers may easily come to agreement to prevent their distributors from exercising the rights to free competition . The consumers may enjoy a reasonable and fair price if the distributors and retailers are allowed to compete fairly in the market.

The tendency is the market leaders are seeking to secure their market foothold and shares by keeping control of their distribution networks to enjoy near monopoly in certain local market. However, as long as the KPPU is active in preventing unfair competition there is no cause for fear of monopoly.
Table - 1
GDP in construction sector and country's GDP on constant prices.

 GDP in construction Country's GDP
Year sector (%) (%)

1996 12.76 7.98
1997 7.36 4.70
1998 -36.44 -13.13
1999 -1.91 0.79
2000 5.64 4.92
2001 4.58 3.83
2002 5.48 4.38
2003 6.67 4.88
2004 8.17 5.13
2005 *) 9.0 5,60

Source: Data Consult, BI, BPS, processed

Table - 2
Composition of cement production by types

Types of cement Composition (%)

PC of Type I 88%
Mixed Cement 11.6%
PC of Type II -
PC of Type V -
OWC 0.5%
White Cement -

Source: Data Consult

Table - 3
Cement factories and shareholders

Producers Status Location Shareholders

B U M N :

Semen Gresik BUMN- East Java -51.01% owned by state
Tbk., PT public -25.53% by Cemex Asia
 company Holdings (Mexico)
 -23.46% public

Semen Padang, BUMN- Padang, 99.99% owned by PT
PT public West Semen Gresik
 company Sumatra

Semen Tonasa, BUMN- South 99.99% owned PT Semen
PT public Sulawesi Gresik
 company
Semen Baturaja, BUMN South 100% owned by state
PT Sumatra

Semen Kupang, BUMN West -39.25 % owned by state
PT Nusa -59 % by Bank Mandiri
 Tenggara -1.75% by Reg. Adm.

SWASTA:

Indocement Public West Java / -65.14% owned by HC
Tunggal company South Indocement GMBH
Prakarsa Tbk, Kalimantan (Heidelberger/Germany)
PT -13.03% by PT Mekar
 Perkasa
 -21.83% by public

Holcim/Semen Public West -77.33% owned by
Cibinong Tbk., Company Java Holderfin BV
PT (Holcim/Swiss) +0.9% by
 Holpac
 -11.53% by other foreign
 investors
 -10.24% by Indonesian
 public

Semen Andalas PMA Aceh -88% owned by Cementia
Indonesia, PT Holding Lafarge (France)
 -12% by IFC

Semen Bosowa PMDN South 100 % owned by Bosowa
Maros, PT Sulawesi Group
 (Aksa Mahmud)

Total

 Production Cap.
 ('000 p.a.)

Producers 2004 2005

B U M N :

Semen Gresik 8,200 8,200
Tbk., PT

Semen Padang, 5,440 5,440
PT

Semen Tonasa, 3,480 3,480
PT

Semen Baturaja, 1,250 1,250
PT

Semen Kupang, 570 570 (*))
PT

SWASTA:

Indocement 15,650 15,650
Tunggal
Prakarsa Tbk,
PT

Holcim/Semen 9,700 9,700 (**))
Cibinong Tbk.,
PT

Semen Andalas 1,400 - (***))
Indonesia, PT

Semen Bosowa 1,800 1,800
Maros, PT

Total 47,490 46,090

Note: (*)) Semen Kupproblem since 2005

(**)) In 2005, PT Holcim temporarily stopped operation of one of its
factories having an annual production capacity of 1.5 million tons in
Cilacap reducing its effective production capacity to 8.2 million tons
per year.

(***)) The factory of PT Semen Andalas was destroyed by tsunami in
December 2004

PMA : Foreign investment company

PMDN: Domestic investment company

Source: Data Consult, processed

Table - 4
Designed capacity ('000 tons p.a)

Year Clinker Cement Growth (%)

1996 24,995 27,330
1997 30,945 33,620 23.0%
1998 40,245 45,070 34.1%
1999 43,470 46,970 4.2%
2000 43,470 46,970 0.0%
2001 43,780 47,140 0.4%
2002 44,425 47,490 0.7%
2003 44,425 47,490 0.0%
2004 43,340 47,490 0.0%
2005 * ) 42,960 46,090 -2.9%
Average growth 6.6

Note * ) The factory of PT Semen Andalas was destroyed by
tsunami in December, 2004.

A new factory is to be rebuilt in that location this year by its owner
Lafarge.

Source: ASI, Data Consult

Table - 5
Cement factories and locations in Indonesia

 Capacity
 ('000
Provinces Name of companies Locations Start-up tons p.a)

Aceh 1. PT Semen Andalas Lhok Nga 1982 1,400 (*))
 Indonesia *

West 2. Semen Padang Indarung 1910 5,440
Sumatra

South 3. Semen Baturaja
Sumatra Baturaja 1980 1,250

Total
Sumatra 8,090

West Java 4. PT Indocement Citeureup 1975 10,500
 Tunggal Prakarsa Tbk Palimanan 1985 2,700
 5. Semen Cibinong Tbk. Narogong 1975 5,600

Central 5. Semen Cibinong Tbk. Cilacap 1977 4,100
Java 6. Semen Gresik Gresik/

East Java Tuban 1957 8,200

Total Java 30,400

South 4. PT Indocement
Kalimantan Tunggal Prakarsa Tbk. Tarjun 2000 2,450

Total
Kalimantan 2,450

South 7. PT Semen Tonasa Pangkep 1968 3,480
Sulawesi 8. PT Semen Bosowa
 Maros Maros 1997 1,800
Total
Sulawesi 5,280

East Nusa 9. PT Semen Kupang
Tenggara Kupang 1984 570

Total Nusa
Tenggara 570

Total
Indonesia 47,490

Note: (*)) The factory of Semen Andalas was destroyed by Tsunami
Import Cementex. Malaysia (Lafarge Group)

Source : ASI, Data Consult

Table - 6
Production of cement in 1996-2005

 Production
 ('000 tons)
 Designed capacity
 ('000 tons p.a) Capacity
 Utilization Growth
Year Clinker Cement Clinker Cement (%) (%)

1996 24,995 27,330 22,246 24,646 90
1997 30,945 33,620 25,218 27,505 82 11.6%
1998 40,245 45,070 22,433 22,341 50 -18.8%
1999 43,470 46,970 27,025 23,925 51 7.1%
2000 43,470 46,970 30,119 27,789 59 16.2%
2001 43,780 47,140 33,880 31,099 66 11.9%
2002 44,425 47,490 33,248 30,720 65 -1.2%
2003 44,425 47,490 32,629 30,647 65 -0.2%
2004 43,340 47,490 34,886 33,230 70 8.4%
2005 42,690 46,090 34,004 33,917 74 2.1%

Average growth rate 1996-2005 4.1%

Source: ASI, Data Consult, processed

Table - 7
Cement production by companies

('000 tons)

 %
Name of companies 2002 2003 2004 2005 Utilization

PT Semen Andalas 1,117 1,123 1,236 *) -
PT Semen Padang 5,013 4,522 4,600 5,112 93%
PT Semen Baturaja 757 821 914 894 71%
PT Indocement
 Tunggal Prakarsa 9,369 9,044 10,232 10,635 67%
PT Semen Cibinong
 (Holcim Indonesia) 4,118 5,120 5,411 5,648 69%
PT Semen Gresik 6,560 6,432 7,194 7,913 96%
PT Semen Tonasa 2,618 2,261 2,419 2,698 77%
PT Semen Bosowa 1,070 1,251 1,132 949 52%
PT Semen Kupang 98 72 92 69 12%
Total 30,720 30,646 33,230 33,918

Note: *) Stop production in 2005

Source: ASI, Data Consult processed.

Table - 8
Production of cement by types, 2005
 (000 tons)

 PC Mixed White
Names of company Type I Cement Cement OWC

PT Semen Andalas
PT Semen Padang 4,687 406 17
PT Semen Baturaja 894
PT Indocement 8,010 2,625
Tunggal Prakarsa
PT Semen Cibinong 5,648
(Holcim)
PT Semen Gresik 7,512 401
PT Semen Tonasa 2,364 334
PT Semen Bosowa 770 179
PT Semen Kupang 69
 29,954 3,945 0 17

 PC PC
 Type Type
Names of company II V Total

PT Semen Andalas
PT Semen Padang 0 2 5,112
PT Semen Baturaja 894
PT Indocement
Tunggal Prakarsa 10,635
PT Semen Cibinong
(Holcim) 5,648
PT Semen Gresik 7,913
PT Semen Tonasa 2,698
PT Semen Bosowa 949
PT Semen Kupang 69
 0 2 33,918

Source: ASI, Data Consult

Table - 9
Production capacity of cement factory units

 Production
Names of company Start-up Factory unit capacity (000
 tons/ year)

1. PT Semen Andalas
Indonesia * 1982 Lhok Nga 1,400 *)

2. Semen Padang 1980 Indarung II 660
 1984 Indarung III 660
 1989/
 1994 Indarung IV 1,620
 1998 Indarung V 2,300

4. PT Indocement 1996 Unit XI- 2,500
Tunggal Prakarsa Tbk Citeureup
 2000 Unit XII-Tarjun 2,450

5. Semen Cibinong Tbk. 1975 Unit 1 600
 1977 Unit 2 600
 1992 Unit 3 1,500
 1998 Unit 6 2,500
 1997 Unit 5 CC-2,
 Cilacap 2,600

6. Semen Gresik 1994 Tuban I 2,500
 1997 Tuban II 2,500
 1998 Tuban III 2,500

7. PT Semen Tonasa 1980 Tonasa II 590
 1985 Tonasa III 590
 1996 Tonasa IV 2,300
8. PT Semen Bosowa
Maros 1998 1 unit 1,800

Note: *) The factory was destroyed by tsunami

Source: Data Consult

Table - 10
Cement factories built with the technology of Fuller Engineering

Customer Location Year Capacity Scope of works

P.T. Semen Tuban I 1990 7800 tpd Production line
Gresik

P.T. Semen Tuban II 1997 7800 tpd Production line.
Gresik Engineering and
 equipment provided by
 Fuller

P.T. Semen Cilacap 1997 7800 tpd Production line
Nusantara Subcontracting for all
 process design and
 major equipment supply
 provided by Fuller

P.T. Semen Tuban III 1998 7800 tpd Production line
Gresik (Tuban III)

P.T.Semen Narogong 1998 7800 tpd Expansion cement
Cibinong production line (Kiln no.
 6). Sub contracting for
 all process design and
 major equipment supply
 provided by Fuller

P.T. Semen Maros 1997 5500 tpd production facility
Bosowa

Source: Data Consult, processed

Table - 11
Cement factories built by Hyundai Heavy Industry

 Main
Cement companies Scope of works Year contractor

PT Semen Cibinong Cibinong Cement Ph. III 1992 Turn-key project
 Expansion Plant 1,500,000 (HHI main
 tons annually contractor)

PT Indocement, Ball Mill Shell 1996 Kawasaki Heavy
Indonesia (4.7m x 14mL) Ind. Ltd., Japan
 for Cement Grinding

P.T Semen Bosowa Roller Mill(500 tons/day 1997 Fuller
Maros for Limestone
 Grinding(LM59.42)

 Roller Mill 1997 Fuller
 (45 tons/day) for Coal
 Grinding (LM26.30)

Source: Data Consult

Table - 12
Composition of Basic materials

Types of basic materials Composition

Composition of clinker:
--Limestone 80%
--Clay 15%
--Silica 4%
--Iron and 1%
Composition of Portland Cement
--Clinker 96%
--Gypsum 4%

Source: Data Consult

Table - 13
Coal consumption of cement factories

 (tons)
Names of company 2003 2004

Semen Bosowa, PT 251,007 169,851
Indocement, Tarjun, PT 269,564 368,413
Indocement, Citeureup, PT 800,923 1,184,564
Indocement, Cirebon, PT 313,497 385,945
Semen Andalas, PT 168,000 185,340
Semen Baturaja, PT 94,005 129,081
Semen Cibinong, PT 885,643 811,581
Semen Gresik, PT 715,172 1,063,638
Semen Padang, PT 692,392 454,214
Semen Tonasa, PT 577,777 783,865
Semen Kupang, PT 5,640 12,817
Total 4,773,621 5,549,309

Soyrce: Energy and Mineral Resources Ministry

Table - 14
Domestic sales, exports and imports of cement, 1996-2005

 Sales ('000 tons)

 Export Import of
 Domestic Total Total cement
Year Sales Clinker Cement Export Sales ('000 tons)

1996 24,033 0 0 0 24,033 1,402
1997 26,037 30 771 801 26,838 1,410
1998 18,965 1,293 3,127 4,420 23,385 109
1999 18,817 3,940 5,108 9,048 27,865 0
2000 22,307 3,552 4,903 8,455 30,762 24
2001 25,700 3,707 5,750 9,457 35,157 44
2002 27,173 4,184 3,791 7,975 35,148 60
2003 27,528 4,270 3,073 7,343 34,872 11
2004 30,192 4,673 2,946 7,619 37,810 17
2005 31,472 3,407 3,289 6,696 38,168 n.a

Source: ASI, BPS, Data Consult

Table - 15
Exports of clinker and cement by countries of destination, 2003-2004

 ('000 tons)

Countries of
destination 2003 2004

Bangladesh 1,901 2,062
Singapore 723 529
Nigeria 1,135 738
Malaysia 640 371
Sri Lanka 248 457
Vietnam 216 64
Cambodia 177 47
Taiwan 166 59
Madagascar 240 172
Mauritius 113 374
USA - 616
New Zealand 49 305
Australia 93 331
Other countries 1,643 1,494
Total 7,344 7,619

Source: BPS/Data Consult

Table - 16
Consumption of cement, 1996-2005

 Domestic Per Capita
 Consumption Consumption
Year ('000 tons) Growth (Kg)

1996 25,435 - 128
1997 27,447 7.9% 141
1998 19,075 -30.5% 96
1999 18,817 -1.4% 94
2000 22,331 18.7% 110
2001 25,744 15.3% 125
2002 27,233 5.8% 130
2003 27,539 1.1% 130
2004 30,208 9.7% 140
2005 31,473 4.2% 143

Source: ASI, Data Consult

Table - 17
Consumption of cement by area

Region Province 2004 2005 Share%

Sumatra 6,294 6,495 20.6%
 Aceh 417 461 1.5%
 North Sumatra 1,689 1,783 5.7%
 West Sumatra 558 560 1.8%
 Riau 908 786 2.5%
 Riau Island 587 628 2.0%
 Jambi 266 258 0.8%
 South Sumatra 716 781 2.5%
 Bangka
 Belitung 168 204 0.6%
 Bengkulu 262 282 0.9%
 Lampung 723 752 2.4%

Java 18,789 19,655 62.5%
 Jakarta 3,540 3,652 11.6%
 Banten 1,768 2,109 6.7%
 West Java 4,971 5,223 16.6%
 Central Java 3,544 3,560 11.3%
 Yogyakarta 592 600 1.9%
 East Java 4,373 4,511 14.3%

Kalimantan 1,455 1,571 5.0%
 West
 Kalimantan 343 366 1.2%
 South
 Kalimantan 296 376 1.2%
 Central
 Kalimantan 122 149 0.5%
 East
 Kalimantan 694 680 2.2%

Sulawesi 1,755 1,738 5.5%
 South east
 Sulawesi 196 174 0.6%
 South Sulawesi 844 894 2.8%
 Central
 Sulawesi 263 255 0.8%
 North Sulawesi 378 344 1.1%
 Gorontalo 74 71 0.2%

Nusa Tenggara 1,443 1,461 4.6%
 Bali 717 789 2.5%
 West Nusa
 Tenggara 380 365 1.2%
 East Nusa
 Tenggara 346 307 1.0%

East Indonesia 474 550 1.7%
 Maluku 211 251 0.8%
 Papua 262 299 1.0%

 Total Indonesia 30,208 31,470 100.0%

Source: ASI, Data Consult

Table - 18
Average growth of cement consumption by regions, 2001-2005

Area Average growth (%)

Sumatra 6.68
Java 7.32
Kalimantan 13.86
Sulawesi 6,6
Nusa Tenggara 10.66
East Indonesia 22.74
Total Indonesia 7.24

Source: ASI, Data Consult

Table - 19
Cement consumption by user sectors

 1997 2005
User
sectors 000 tons (%) 000 tons (%)

Ready Mix 3,376 12.3 441 1.4
Construct. 4,748 17.3 283 0.9
Housing 14,877 54.2 26,028 82.7
Others 4,446 16.2 4,721 15.0
Total 27,447 100.0 31,473 100

Source: ASI, Data Consult

Table - 20
Cement producers and market share by areas

Area SAI SP SB ITP SC

Total
 Sumatra 17.3% 48.2% 12.3% 14.0% 7.3%
Total Java - 3.8% 0.5% 36.8% 21.3%
--Jakarta - 11.4% 45.2% 27.5%
--Benten - 5.1% 4.5% 43.6% 18.4%
--West Java - 2.1% 52.3% 19.9%
--Central Java - 3.1% 36.4% 29.1%
--Yogyakarta - 9.8% 47.3%
--East Java - 12.7% 9.5%
Total
 Kalimantan 0.2% 30.0% 6.7%
Total Sulawesi - 11.4%
Total Nusa
 Tenggara - 30.0% 2.3%
Total Ind Timur - 14.5%
Total Indonesia 3.6% 12.3% 2.8% 29.7% 15.2%

Total(000 ton) 1,124 3,877 896 9,334 4,793

 Total
Area SG ST SBM SK %

Total
 Sumatra - - 0.8% - 100%
Total Java 35.8% 0.2% 1.7% 100%
--Jakarta 14.2% 0.4% 1.3% 100%
--Benten 23.8% 4.6% 100%
--West Java 25.7% 100%
--Central Java 30.6% 0.7% 100%
--Yogyakarta 42.8% 100%
--East Java 73.7% 4.1% 100%
Total
 Kalimantan 23.0% 36.5% 3.6% 100%
Total Sulawesi 67.5% 21.0% 100%
Total Nusa
 Tenggara 29.1% 23.2% 10.8% 4.7% 100%
Total Ind Timur 14.9% 64.5% 5.8% 0.2% 100%
Total Indonesia 25.1% 7.9% 3.2% 0.2% 100%

Total(000 ton) 7,903 2,482 992 69 31,470

Source: ASI, Data Consult

Table - 21
Marketing areas of cement producers

Provinces Sumatra Java Kalimantan Sulawesi

PT SAI 100% - - -
PT SP 81% 19% - -
PT SB 89% 11% - -
PT ITP 10% 77% 5% 2%
PT SC 10% 87% 2% -
PT SG - 89% 5% -
PT ST - 2% 23% 47%
PT SBM 5% 33% 6% 37%
PT SK - - - -

Provinces Nusa Eastern Total
 Tenggara Indonesia Indonesia

PT SAI - - 100%
PT SP - - 100%
PT SB - - 100%
PT ITP 5% 1% 100%
PT SC 1% - 100%
PT SG 5% 1% 100%
PT ST 14% 14% 100%
PT SBM 16% 3% 100%
PT SK 99% 1% 100%

Source: DatConsult

Table - 22
Total cement supply by type of packaging in domestic market. 2005

 Sack Bulk Total
Name of company (000 tons) (000 tons) (000 tons)

PT Semen Andalas 939 186 1,125
PT Semen Padang 3,263 613 3,876
PT Semen Baturaja 791 104 895
PT Indocement Tunggal
 Prakarsa 7,759 1,577 9,336
PT Semen Cibinong (Holcim) 3,605 1,189 4,794
PT Semen Gresik 6,116 1,787 7,903
PT Semen Tonasa 2,359 123 2,482
PT Semen Bosowa 576 416 992
PT Semen Kupang n.a n.a n.a
 25,408 5,995 3,1403

 Bulk
Name of company Sack (%) (%)

PT Semen Andalas 83% 17%
PT Semen Padang 84% 16%
PT Semen Baturaja 88% 12%
PT Indocement Tunggal
 Prakarsa 83% 17%
PT Semen Cibinong (Holcim) 75% 25%
PT Semen Gresik 77% 23%
PT Semen Tonasa 95% 5%
PT Semen Bosowa 58% 42%
PT Semen Kupang n.a n.a
 81% 19%

Source: ASI, Data Consult

Table - 23
Cement retail price--January 2006 (Rp/bag @ 50 kg)

 Retail price (Rp/sack)

No. Areas Low High

1 D.I. Aceh 41,250 41,900
2 North Sumatra 34,000 35,000
3 West Sumatra 35,000 35,000
4 Riau 38,000 39,000
5 Riau Islands 35,000 37,500
6 Jambi 39,000 39,,000
7 South Sumatra 38,500 40,000
8 Bangka-Belitung 36,000 44,000
9 Bengkulu 41,000 41,000
10 Lampung 36,000 39,000
 Total Sumatra
11 Jakarta 38,000 40,000
12 Banten 38,000 40,000
13 West Java 38,000 39,000
14 Central Java 38,750 40,000
15 D.I.Y. 36,500 37,700
16 East Java 37,800 39,000
 Total Java
17 West Kalimantan 38,000 40,000
18 South Kalimantan 41,000 45,000
19 Central Kalimantan 46,000 46,000
20 East Kalimantan 36,000 38,000
 Total Kalimantan
21 Southeast Sulawesi 34,000 35,000
22 South Sulawesi 31,000 33,000
23 Central Sulawesi 35,000 35,000
24 North Sulawesi 40,000 45,000
25 Gorontalo 39,000 42,000
 Total Sulawesi
26 Bali 33,750 40,000
29 Maluku 42,500 42,500
30 Papua 55,000 55,000

Source: Data Consult

Table - 24
Financial performances of cement companies 2004-2005

(Rp million)

 Semen
Description Baturaja Indocement Holcim Semen Gresik

 2005

Income 442,206 5,592,354 3,017,599 7,504,000
Cost of goods 312,962 3,572,455 2,618,457 n.a.
 sold

Operating cost 52,102 805,944 280,215 n.a.
Operating profit 77,142 1,213,955 118,927 1,451,000
Net profit/loss 17,482 739,686 (334,081) 936,000

 2004

Income 385,367 4,615,507 2,368,489 6,067,558
Cost of goods 289,203 3,092,419 2,196,901 4,005,287
 sold
Operating cost 39,083 686,852 241,571 1,104,434
Operating 57,080 836,237 (69,983) 957,837
profit/loss
Net profit/loss 4,135 116,023 (533,130) 520,590

Source: Company's financial reports

Table - 25
Supply-Demand Projection on scenario of low consumption
growth of 4% a year
(000 tons)

 Existing Additional Domestic
Year Capacity capacity requirement

2006 46,090 32,731
2007 46,090 34,040
2008 46,090 35,402
2009 46,090 36,818
2010 46,090 38,291
2011 46,090 2,500 39,822
2012 48,590 2,500 41,415
2013 51,090 43,072
2014 51,090 2,500 44,794
2015 53,590 46,586

 Capacity
Year Export Production utilization

2006 3,500 36,231 79%
2007 3,500 37,540 81%
2008 3,500 38,902 84%
2009 3,500 40,318 87%
2010 3,500 41,791 91%
2011 3,500 43,322 94%
2012 3,500 44,915 92%
2013 3,500 46,572 91%
2014 3,500 48,294 95%
2015 3,500 50,086 93%

Source: Data Consult

Table - 26
Supply-Demand Projection on scenario of higher consumption growth of
6% a year
('000 tons)

 Existing Additional Domestic
Year Capacity capacity requirement

2006 46090 33,360
2007 46090 35,362
2008 46090 37,484
2009 46,090 2,500 39,733
2010 48,590 2,500 42,117
2011 51,090 2,500 44,644
2012 53,590 5,000 47,322
2013 58,590 2,500 50,162
2014 61,090 2,500 53,171
2015 63,590 56,362

 Capacity
Year Export Production utilization

2006 4,000 37,360 81%
2007 4,000 39,362 85%
2008 4,000 41,484 90%
2009 4,000 43,733 95%
2010 4,000 46,117 95%
2011 4,000 48,644 95%
2012 4,000 51,322 96%
2013 4,000 54,162 92%
2014 4,000 57,171 94%
2015 4,000 60,362 95%

Source: Data Consult
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Publication:Indonesian Commercial Newsletter
Article Type:Industry overview
Geographic Code:9INDO
Date:Apr 1, 2006
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