JAKARTA: Semen Indonesia has lowered its prices by around 10 percent so far this year in order to be able to compete with rivals amid an economic slowdown that has seen a decline in the construction sector.
With an increase in competition in the local market, the company hoped its exports would be able to boost its revenues, the company’s marketing director Amat Pria Darma said.
Amat said recently after a presidential instruction earlier this year, to state-run cement makers to lower their prices, the cement maker had cut its prices further by around Rp 3,000 (23 US cents) per sack to cope with tighter competition and lackluster demand.
President Joko “Jokowi” Widodo instructed state-owned cement makers to lower their prices by Rp 3,000 per sack back in January, to support the government’s massive infrastructure projects.
Semen Indonesia has so far adjusted its prices by around 10 percent this year, with cement prices hovering around Rp 60,000 per sack at the start of the year.
“A number of new facilities have started operating, new supplies are coming in. We have to lower our prices to keep up with the market with overall plunging domestic demand,” he told reporters
Semen Indonesia saw its domestic sales volume fall by 5.3 percent between January and May, on an annual basis, to 9.91 million tons, even steeper than the national decline in cement demand of around 3.8 percent, as shown in the company’s monthly data.
In May alone, the company’s domestic sales fell by around 14 percent year on year.
While cement demand — which is often seen as an economic growth indicator in an emerging country — has contracted since the start of the year on the back of the slowing economy, a number of cement producers have seen additional production from newly operating factories. New players have also entered the market, such as Semen Merah Putih, which analysts say has furthered contributed to market oversupply.
Semen Indonesia saw its market share in the country slip from 44 percent last year to 43 percent this year.
Amat said he was pessimistic that the company could achieve its target of seeing sales volume up by around 6 percent this year, or even maintain it at the same position as last year, despite the construction season that usually begins in the second half of the year.
The company, he said, would look to export markets as a strategy to cope with the domestic slowdown.
Semen Indonesia exports rose by more than eight times from 22,155 tons in the first five months of 2014, to 184,181 tons in the same period this year.
The surges, Semen Indonesia corporate secretary Agung Wiharto said, were not particularly good news as with high transportation costs, cement makers only exported their production when domestic sales were down, and the contribution from exports was not significant.
Exports, he said, were made to better ensure its products were absorbed to maintain utilization and efficiency.
Agung, however, said that the company was looking to initiate contract-based exports, in comparison to its current spot sales, in the near future if the economy had not shown any sign of picking up.
By relying on a six-month to one-year contract, the company could ship more product, thus ensuring a more certain market.
“We hope to see our exports hit 1 million tons this year. The prospect is good, given some of our traditional markets have no cement producers,” he said.
Among Semen Indonesia’s major customers are Timor Leste, Bangladesh and the Maldives.
Desmon Silitonga from Milenium Danatama Asset Management said that Semen Indonesia was on the right track to cope with an unfavorable market.
“Lowering prices might impact their profitability. At the same time however, they’re trying to reach export markets, which is good to maintain their margins,” he said.
Semen Indonesia sold 26.15 million tons of cement in the domestic market last year and exported 197,284 tons of its production.
