Indonesia’s Top Cement Firm Plans $200m Burma Factory

By Janeman Latul & Andjarsari Paramaditha 1 May 2013

JAKARTA — PT Semen Indonesia plans to build a $200 million factory in Burma in 2014 as it expands its business in Southeast Asia to take on Thai rival Siam Cement Pcl, the head of country’s biggest cement maker said.

The Burma plan is the latest expansion strategy by the Gresik-based company, which became the first Indonesian state-owned firm to make an overseas corporate acquisition when it bought a majority stake in Vietnam’s Thang Long Cement in 2011.

“If everyone is in Vietnam and Myanmar and we just play in Indonesia, then, like playing chess, we will be squeezed,” Chief Executive Dwi Soetjipto told Reuters on Tuesday, while listening to rock music in his spacious office in Central Jakarta.

“That’s why we put our bishop in Vietnam and our knight in Myanmar.”

Vietnam’s property market has come to a standstill in the past two years after a long period of strong growth fueled by local bank lending. This has presented foreign buyers with cheap takeover targets, Soetjipto said.

The Vietnamese cement industry has overcapacity of around 30 million tons per year, some of which is exported to Burma. Semen Indonesia’s plant in Vietnam will supply Indonesia and other markets, Soetjipto said.

Overall, Southeast Asian companies are battling to be more competitive across borders as they prepare for the advent of the Association of Southeast Asian Nations (Asean) common market in 2015, which will loosen restrictions on the transfer of goods and services across the region.

The company is in discussions with the Burma government about opening a factory with a 600,000 to 1 million ton annual capacity. Burma, which wants to develop rapidly but is doing so from a very low base, currently imports around half of the 6 million tons of cement it uses annually, Soetjipto said.

“It’s a test case before the real game begins for a bigger regional competition against the Thais because they also sell their products in Myanmar.”

Siam Cement, Thailand’s top industrial conglomerate, plans to invest $900 million over the next three years to build cement plants in Burma, Cambodia and Indonesia.

Demand for cement in Indonesia, Southeast Asia’s biggest economy, was around 60 to 61 million tons in 2012 and the national cement industry association expects it to grow around 8 to 10 percent this year, led by infrastructure and property projects.

That demand is matched by local firms’ capacity but Semen Indonesia and other cement firms are adding capacity to prepare for future demand growth expected at around 7 percent over the next five years, Soetjipto said.

Semen Indonesia, which holds a 44 percent share of the domestic market, plans to build a new factory with 1.5 to 3 million ton capacity in North Sumatra. It is also studying a plan to build another factory in the east of Indonesia.

The company expects to buy a 70 percent stake currently owned by the government in cement maker PT Semen Baturaja after that company sells a 30 percent tranche in an initial public offering planned for this year.

Semen Indonesia expects to produce up to 29 million tons in 2013, an increase of 20 percent from last year, while its net profit is expected to rise around 15 percent in 2013, Soetjipto said.

Still, demand growth for cement in some parts of Indonesia fell in the first quarter of this year as a result of falling commodities prices in regions dependent on mineral exports.

“We’re a bit worried on the recent trend … the Sumatra region even suffered negative growth in March,” he said.