Thai cement maker SCG to build factory, upbeat about market
Siam Cement Group (SCG) on Tuesday signed an agreement with its Chinese counterpart CONCH for the machinery and construction process for an eco-friendly cement plant in Sukabumi, West Java.
The plant, with a capacity of 1.8 million tons per year, will be run by SCG’s wholly owned subsidiary PT Semen Jawa. With investment totaling US$356 million, construction is expected to kick off this year.
“This eco-friendly plant is expected to be completed by the third quarter of 2015,” Semen Jawa president director Nantapong Chantrakul said.
The domestic cement market is expected to grow by around 10 percent this year, analysts have said, continuing two digit growth after last year’s 14.5 percent.
Figures from the Indonesian Cement Association show that the country’s domestic cement sales reached 54.96 million tons last year, thanks to an increasing number of infrastructure projects and the growing property business. The market saw 13.58 million tons of cement sold in the first quarter of the year, increasing by 8.6 percent year on year.
The country’s largest cement producer PT Semen Indonesia, whose shares are traded on the Indonesia Stock Exchange (IDX) under the code SMGR, estimated that total cement production of existing players would touch 60.18 million tons this year, slightly below national consumption expectation of 60.46 million tons.
SMGR estimated that total installed capacity of cement players in the country would reach 70.8 million tons this year and would continue to grow as new players arrive to make the country achieve a total installed capacity of 105 million tons by 2018.
SMGR itself has 29.5 million tons in production capacity this year.
In addition, SCG chief finance officer Chaovalit Ekabut said despite increasing competition, the company remained optimistic about the country’s cement market, partly due to low cement consumption per capita in Indonesia.
Figures from SMGR show that the country’s per capita cement consumption was at 223 kilograms per year, lagging behind other countries in Southeast Asia, such as Thailand and Vietnam where it has reached around 500 kilograms.
“We will be careful and make small-scale investments in the cement market in Indonesia. Some projections calculate that cement capacity here may reach 100 million tons in another five to six years. This is very dangerous because you face a similar kind of bubble when the demand seems to be very high, people build more and more plants and then everything stops and you end up having so much extra capacity,” Chaovalit said.
The total assets of SCG in Indonesia reached $983 million, accounting for a total of 55 percent of the company’s assets in the Southeast Asia region.
SCG’s portfolio includes holdings in several companies in Indonesia. The company, through SCG
Building Materials Co. Ltd., holds a 96.31 percent stake in Jakarta-listed PT Keramika Indonesia Assosiai; and through SCG Chemicals Co., Ltd., holds a 30.03 percent stake in PT Chandra Asri Petrochemical
For operating results of SCG in Indonesia, the company reaped $109 million in revenue in the first quarter of the year, 55 percent growth year-on-year supported by the consolidation of the ready mixed concrete business and better performance of cement-building materials businesses.
The country’s cement consumption increased by 14.5 percent to 54.96 million tons last year.
According to figures from the Indonesian Cement Association, national cement consumption reached 4.65 million tons in January, a 14.5 percent increase compared to last January.
A number of foreign cement producers are eyeing the country’s lucrative cement business.
Besides SCG, other foreign cement firms planning to invest in Indonesia include China National Building Material Company Limited (CNBM), which is planning to build a cement plant worth $350 million with 2.4 million ton capacity in Central Java.
Chinese Zhejiang is also reportedly planning to relocate its factory, which has 2 million tons in capacity, to Banten.
Anhui Conch Cement has also announced that it would establish four cement plants in South Kalimantan, East Kalimantan, West Kalimantan and West Papua.
The plants’ total production capacity will reach 13.7 million tons and in need of $2.35 billion in total investment.