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Price pressure faces Indonesian cement producers

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World Cement,

The new government in Indonesia has capped the cement price of state-owned cement companies. Cement is not the only industry to face price caps, with rice, cooking oil and other basics also being given reference prices to meet. Fuel subsidies were cut in November and fuel prices have been lowered twice since then.

The price of cement sold by state-owned Semen Indonesia ranges from Rp.51 000 to Rp.53 000 depending on the region. The government has declared a price cut of Rp.3000 per 50 kg bag, or around a 6% cut. This came into effect on 19 January. Other producers have reportedly followed suit to remain competitive in a market in which Semen Indonesia holds a 44% share. The Jakarta Post reports that this will create earlier than anticipated price competition – it was expected that this level of competition would arise in 2016 following capacity expansion projects over the next two years. Price cuts and additional capacity will combine to make it a difficult operating environment for cement producers and will have an impact on earnings.

It is thought that the price cut was intended to support infrastructure growth. On a more positive note, cement producers will benefit from the lower cost of fuel, which extends also to lower transportation costs, coal costs and even packaging costs. Together these account for 50% of production costs.

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