JAKARTA: Cement consumption slumped by nearly 4 percent on an annual basis during the first five months of 2015, the biggest decline in the January-May period in the last six years, mired by the country’s slowing economy.
Data released by Indonesian Cement Association show that cement demand between January and May slipped around 3.8 percent to 22.87 million tons, down from 23.78 million tons in the same period last year.
It was the steepest drop so far this year after consumption consistently declined since February. It was also the biggest drop recorded since 2009, when domestic demand plunged by nearly 7 percent year-on-year (yoy), hauled by the global financial crisis.
“The economic slowdown pulled down cement demand in 5M15 [the first five months of 2015], in addition to declining commodity prices outside Java. The entry of new players has also led to the risk of oversupply,” Liliana S. Bambang from Mandiri Sekuritas said in a published research paper.
“So far, we don’t see any positive catalyst for the cement sector, with growth in infrastructure spending still relatively flat at -0.6 percent yoy.”
Indonesia’s economy grew 4.7 percent in the first quarter this year, the slowest in six years and since the start of the global financial crisis. Cement consumption has been a parameter in emerging markets’ economic growth.
“Cement demand has not fully recovered yet due to slower economic growth, relatively high interest rates, changes in property regulations and bleak commodity exports, which hampered property demand and consequently reduced cement consumption,” Marwan Halim from UOB KayHian said in a report.
Bank Indonesia has maintained its interest rate at 7.5 percent to curb inflation and maintain the currency, while mortgage regulation and a lower price threshold for property products subject to 20 percent income have contributed to constraining the property industry.
“The biggest sales declines were seen in commodity-driven provinces,” he continued.
Monthly consumption in May slumped 7.9 percent on an annual basis, much steeper than the 1.1 percent decline recorded in April and was the biggest drop in May recorded since 2009.
Lower sales in May occurred in almost every part of the country, but East Nusa Tenggara and West Nusa Tenggara provinces saw monthly sales rise by nearly 50 percent yoy.
Commodity-based provinces experienced the highest declines during the month, with South Kalimantan and East Kalimantan making the steepest plunges with 41 percent and 24 percent, respectively. Even West Java, which traditionally has one of the highest cement consumption rates in Indonesia, suffered a sales decline of 8.3 percent yoy for its May demands.
Liliana said that the falling sales came with shrinking market control for big players, due to the entry of new player Semen Merah Putih from Cemindo Gemilang.
State-run cement giant Semen Indonesia, according to Liliana’s report, saw its market share contract from 44 percent to 43.3 percent this year, while the second-biggest producer, Indocement Tunggal Prakarsa, saw its market grip slip from 30.5 percent to 29.2 percent thus far.
Cemindo Gemilang, a subsidiary of oil palm plantation, mining and property business holdings Ganda Group, sold around 600,000 tons of cement during the first five months of 2015, adding more supply in the declining market.
