Cement Price Rise to Have Knock-On Effect

Cement giants are gearing up to raise retail prices in relation to the planned fuel and electricity price hikes, in a move that will further increase property prices from the current high, industry players say.

The government’s plans to raise the subsidized fuel price to Rp 6,000 per liter as of April from the current Rp 4,500, coupled with a possible increase in the electricity tariff by 10 percent, have been widely expected to boost prices across the board, increasing production and distribution costs.

For state-owned PT Semen Gresik (SMGR), the nation’s largest cement producer, distribution costs account for 16 percent of overall expenses, so if fuel costs increase by 33 percent, the company’s overall costs may soar 5 to 6 percent, said Agung Wiharto, Semen Gresik head of investor relations.

“The plan to raise cement prices is not to take advantage of the [fuel and electricity] price hikes, but only to offset our growing costs,” he told The Jakarta Post on Tuesday, without disclosing the exact percentage increase.

Higher prices will result in the delays of consumers’ plans to build houses, add more rooms and renovate, he said.

“Seventy percent of our cement consumption is used by retail consumers, who will be affected most by fuel-price hike.”

Against that backdrop, nationwide sales growth in cement may slow from 17.7 percent last year (the fastest since 1997 and representing over 4.5 million tons in sales) to about 8 percent this year, according to Agung.

The slowdown in retail cement sales, however, will be offset by accelerating infrastructure projects, which will require tons of cement, he added.

Cement is among the key indicators of economic growth in Indonesia, which is heavily reliant on household consumption.

Bank Indonesia (BI) has said that the government plan on the energy-price hike would affect inflationary expectations and lift consumer index prices (CPI) to 7.1 percent from 3.56 percent in February.

PT Indocement Tunggal Prakarsa (INTP) also plans to pass on to the market incremental operational costs, finance director Tju Lie Sukanto said.

“The [cement] price increase may vary depending on the location of the plants and distribution points, because the burden is on transportation costs,” said Indonesian Cement Association (ASI) chairman Urip Timuryono.

Cement producers could avoid ballooning costs by maintaining production capacity at 100 percent and by imposing efficiency measures.

“Some cement makers with lagging market shares might not raise prices to grab larger shares amid competition,” Urip said in a telephone interview.

PT Lippo Karawaci (LPKR), the nation’s largest listed property firm, said the increase in cement prices, coupled with other price increases across the board, would have a big impact on property prices, which have already been on the rise due to supply constraints.

Property loans rose significantly by 20 percent when approaching 2011 and the nation’s property price index has increased ever since, from a contraction seen in the second quarter of 2010 to about a 5 percent growth in early 2011, BI data shows.

“We have not calculated the impact of price hikes to property prices, but they will definitely increase,” Danang Kemayan Jati, Lippo Karawaci’s vice president and head of corporate communication, told the Post.

“Cement and steel prices have big impacts on property because they are the raw materials.”

Price increases would affect low to medium-end property sales the most, while those for the high-end market would continue to book robust growth, he added.

Source : http://www.thejakartapost.com/news/2012/03/28/cement-price-rise-have-knock-effect.html