By Teguh HartantoDeputy Head of Research
Bahana Securities
Although the upcoming April’s fuel price hike is unfavorable for the cement industry as transportation accounts for 16 percent of cost of goods sold, existing cement producers have the flexibility to adjust their ex-factory cement prices accordingly, paving the way for prevention in margin contraction. Note that cement only accounts for around 12 to 15 percent of the total costs to build a house. Hence, higher cement prices tend to be less sensitive to volumes.
Nevertheless, we foresee slower growth pace in 2012 and beyond with estimated annual growth rate of between eight to eleven percent, following surging demand for domestic consumption with growth of 17.7 percent in 2011. We note, however, that our expected 2012 cement volume growth is still more robust compared to the past 10 year-historical volume growth of around six percent.
The Indonesian Cement Association recently revealed year-to-date domestic production of 8.12 million tons or up 19.4 percent year-on-year, moving in line with our full year 2012 cement volumes of 53 million tons, which is up 11 percent year-on-year. Although the daily adjusted volumes in February alone displayed some slow down, February 2012’s total volumes increased 23.9% year-o-year to reach 4.1 million tons.
