A Tale of Two Archipelagos

These neighbouring Southeast Asian countries are each made up of thousands of islands and dozens of ethnic groups, facts that have always presented political, social and logistical challenges. The Philippines is heavily Christian, Indonesia is the world’s most populous Muslim country, but both are enthusiastic democracies – making them relative rarities in Asia. Since the Second World War both have suffered from dictatorial regimes, a fact many analysts believe has contributed to their current poor performances in corruption indices. Both have recently been overshadowed economically by the successes of their smaller neighbours – Malaysia, Thailand and Singapore. But, according to most economic analysts, they could make up lost ground in the future, particularly if much anticipated infrastructure investments finally materialise. It is that potential which cement makers are finding so attractive.

The Philippines

The Cement Manufacturers Association of the Philippines (CEMAP) reported that cement sales fell 6.7% in the first quarter as demand retreated, falling to 3.8 million t, down from 4.076 million t a year earlier. However, 2010 was a record year for the sector, with total sales reaching some 15.5 million t, up from 14.5 million t in 2009 and higher even than the 15.2 million t recorded in 1997, just before many of Southeast Asia’s economies went into meltdown.

CEMAP said kiln capacity last year stood at 19.547 million t while grinding capacity was over 26 million tpa. The organisation has called on the government to introduce tariffs to prevent imports from overwhelming domestic suppliers.

The Philippines is continuing to struggle to attract Foreign Direct Investments and, in part, this is down to its lethargic bureaucracy. A year after announcing its infrastructure plans, tender bids have not even been issued for many of the listed road, port and utility projects. In May, CEMAP requested an audience with the Department of Trade and Industry (DTI) to find out why so many projects had not materialised.

Of ten public-private partnership schemes mooted at the start of the year that would have boosted cement demand but have since been delayed, it would seem that only two will now go ahead this year. However, a further four projects worth almost US$800 million are in an advanced stage of preparation, including the construction of two toll roads and a major school building programme, although a definitive timetable for tenders had not been confirmed as WORLD CEMENT went to press.

Transportation and Communications Secretary Mar Roxas said that bids to extend railway lines and operate airports – projects that were planned for this year – would now be invited after the first quarter of 2012.

President Benigno ‘Noynoy’ Aquino III has pledged to boost government spending, particularly on the country’s long-neglected infrastructure. “With ample fiscal space, the government is expected to boost spending in the second half and catch up on delayed implementation of infrastructure projects,” said a World Bank economist.

With further growth expected in subsequent years, the project delays have not discouraged Thailand’s Siam Cement Public Co. Ltd (SCG) from pursuing a growth strategy in the country. The company has been highly vocal in its pursuit of Filipino opportunities after President Aquino invited the company to invest in a new cement plant.

Indonesia

Indonesia has all the attributes to turn the BRIC grouping of emerging economic powers into the BRIIC. With a population now pushing 250 million, it has a sizeable domestic market. It also boasts a stable political system and its economy, bolstered by surging global demand for its abundant natural resources, is seemingly immune to the foul winds of global recession. Indeed, almost every economic indicator points to Indonesia’s emergence as a true regional economic power.

The economic boom has been reflected in cement demand. The Indonesian Cement Association (ASI) predicted sales growth of 6% earlier this year but such has been the construction boom that this has now been revised to upwards of 10%. That tallys up to almost 45 million tpa, three times that of the Philippines, despite a third quarter slowdown due to Ramadan.

“The increase in cement sales is supported by growth in the property sector and government spending on infrastructure development,’’ said Urip, a former President Director at Semen Gresik, the country’s largest cement maker.

ASI said the national production would increase this year to 43 million t from 41 million t in 2010, with imports bridging any supply gap, but more capacity will be needed in future. ASI pointed out that average cement consumption per capita in Indonesia is still just 175 kg, compared to almost 400 kg in Vietnam and 565 kg in Thailand.

Semen Gresik, a leading player in Indonesia’s cement markets, said it would increase production from 20 million t this year to 30 million t in 2015 to meet expected rising demand. One new plant, in Pangkep, south Sulawesi, will be operational this year and in 2012 another will be opened in Tuban, East Java. The new facilities will add some 5 million tpa of capacity.

With long-term cement demand forecasts excellent, for many of Indonesia’s producers securing ample power is now a key challenge. Indonesia might be the world’s largest thermal coal producer, but such is demand from overseas power producers and state-owned electricity utility PLN, that a scramble is underway to secure thermal coal resources to allow forward expansion and guard against future coal price rises.

Semen Gresik is among those looking to invest in the coal mining industry. Owning a coal company “will become a trend, especially for companies that require a lot of energy,” said Dwi Soetjipto, Semen Gresik’s President Director, earlier this year. “Companies such as PLN or Semen Gresik will be heading in that direction to secure a reliable supply.”

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