May 7, 2014 7:28 pm JST

Holcim Indonesia to raise cement prices amid electricity cost hike

WATARU SUZUKI, Nikkei staff writer

JAKARTA - Holcim Indonesia, a subsidiary of the world's biggest cement maker, Holcim, aims to raise selling prices by as much as 5% by the end of the year to cover the sharp increase in electricity costs from May.     

     The move follows a decision by the Indonesian government to raise electricity prices by up to 65% to curb energy subsidies. "The increase (in electricity prices) for our business is around 64%, which will translate into somewhere between a 3% and 5% increase in the selling price of cement," Eamon Ginley, president director for Holcim Indonesia, said at a May 6 press conference after its annual shareholders' meeting in Jakarta.

     The rise in electricity prices will take effect gradually from May to September, Ginley said.

     He added that the company will also reflect the increase in minimum wages, indicating that selling prices may go up even higher. A 50kg bag of cement currently sells for around 62,000 rupiah ($6), a spokesman for the company said.

     Numerous Indonesian companies have expressed their opposition to the sudden electricity price hike. But Holcim Indonesia, which currently holds a market share of around 15%, is one of the first companies in the cement industry to announce an increase in selling prices. Bigger players such as Semen Indonesia and Indocement Tunggal Prakarsa, which also face rises in production costs, may make similar moves later in the year.

     But price negotiations will be difficult for cement makers this year, as a rise in interest rates in the second half of 2013 and an upcoming presidential election in July is forcing companies and the government to cut back on infrastructure spending. The cement industry already faces a slowdown in demand. According to the Indonesia Cement Association (ASI), the growth rate of cement consumption in Indonesia during the first three months of 2014 was less than half what it was in the same period last year, increasing 3.6% year on year to 14 million tons. Consumption grew 7.8% in the first quarter of 2013. ASI projects a 5-6% increase in cement consumption this year.

     "We are definitely seeing demand depressed so far this year" said Kent Carson, Holcim Indonesia's chief financial officer. "The first quarter fell short of our expectations, as we expected demand to grow 9 to 10%."

     But the company said it will still post substantially higher revenues this year, supported by a boost in production capacity. The company added a cement plant in east Java last year with a capacity of 1.7 million tons, which began operations in October.

     Holcim Indonesia reported a net profit of 323 billion rupiah in the first three months of 2014, a 76% surge from the same period last year. This was supported by an increase in sales, which grew 9% year on year to 2.3 trillion rupiah, and foreign exchange gains.