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Indonesia still grappling with cement overcapacity


In August 2023, the Indonesian Ministry of Industry alleviated the growing overcapacity problem in the cement sector by implementing new suspension policies and new investment regulations. At the same time, the industry is shifting to more sustainable cement production to achieve a net zero future.

Ignatius Warsito, Director General of Chemical, Pharmaceutical and Textile Industries at the Ministry of Industry, explained that overcapacity in the cement sector exists in almost all regions except Bali-Nusa Tenggara and Maluku in Papua. Warsito added: “The largest overcapacity rate is Java at more than 55.4%.”

Currently, the national cement industry consists of 15 integrated cement companies from Aceh to Papua with a total installed capacity of 116 million tonnes. "Currently, there is still an overcapacity of 51.8 million tons (45%) in our cement industry."

Cement production capacity and usage

Heidelberg Materials estimates that the country's installed cement capacity will be 116.8 million tons by the end of 2022. The company expects this figure to increase to 119.8 million tons by 2025. At the same time, the company stated that the usage rate in 2022 was 54% in February: it is not expected to exceed 56.9% in 2025. Cement demand is expected to reach 63 million tonnes in 2022, down 3.5% from 65.2 million tonnes in 2021.

The health of the industry has deteriorated significantly since 2012, when capacity and demand were more or less in sync at 61 million tonnes/year and 55 million tonnes/year respectively. In 2012, the usage rate reached a record level of 92.9%. Since then, the gap between cement production capacity and demand has widened and usage rates have fallen by almost half. Total cement demand in June 2023 stood at 5.291 million tonnes; Only a 1.1% decrease compared to 5.35 million tons in the same period in 2022, and a 2.2% decrease compared to 5.463 million tons in the same period in 2021. Regions that saw strong growth in domestic cement production in the first half of 2023 include Kalimantan, Bali and Nusa Tenggara, with increases of 7.8%, 11.6% and 11.6% respectively.

The solution for domestic cement producers is to turn to export markets. Warsito commented: "Total cement and clinker exports increased by 11.57% in the first quarter of 2013 compared to the same period last year. This is consistent with increasing demand in foreign markets."

Taking steps to achieve net zero emissions

While balancing supply and demand is a challenge for the industry, it is always looking to create a more sustainable approach to production. Indian Cements is working with Japanese environmental consultancy Amita Holdings on a two-year feasibility study to examine how production can be made carbon neutral. The research will begin with trials of alternative feedstock waste and municipal solid waste (MSW) using refuse-derived fuel (RDF).

Cement producers have increasingly had to consider alternative fuels as coal prices have risen sharply since December 2020, increasing production costs and creating supply shortages. “Coal is the main raw material and fuel in the cement industry, accounting for 40% of production and cost structure,” Mr. Warsito said.

The Global Cement and Concrete Association (GCCA) and the Mission Possible Partnership are also pressing developing country governments to switch from bagged cement shipments to bulk shipping. Additionally, cement in Indonesia is often mixed by hand on site, potentially leading to inefficient use of the product. Without formal formulation or quality control, this approach can lead to overuse of cement. Developing countries such as Indonesia can reduce the carbon intensity of cement by providing bulk cement and ready-mixed concrete services.

In parallel with this initiative, a "zero overload" policy targeting logistics costs will also be implemented. Currently, 80% of cement in Indonesia is transported by trucks, and the size and volume of trucks can be adjusted to better maximize loading capacity. Prior to the implementation of the policy, the cement industry made three recommendations: adjusting the driver/rural system (vehicle inspection) according to vehicle design and road grade, implementing the multi-axle policy and improving road load carrying capacity quality. As of November 2019, 809,496 out of 2,073,698 vehicles (39%) were found to be in violation of the legislation in 73 vehicle weighing offices affiliated with the Land Transportation Department of the Ministry of Transport. The most common violation (84.43%) was overloading.

In summary

Indonesia is experiencing a growing sector shortage as it struggles to balance cement installed capacity with export opportunities and more sustainable production. However, cement demand is not expected to improve enough to increase low capacity utilization levels in the medium term. This will therefore limit further investment in the construction of new factories and production capacity.

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