2023, the Indonesian Ministry of Industry eased the growing overcapacity problem in the cement industry by implementing a new moratorium policy and new investment arrangements. At the same time, the industry is transitioning to more sustainable cement production for a net-zero future. Ignatius Warsito, director general of the chemical, pharmaceutical and textile industries at the
Ministry of Industry, explained that there is overcapacity in the cement industry in almost all regions except Bali-Nusa Tenggara and Papua Marugu. "The largest percentage of overcapacity is in Java, at more than 55.4%," Warsito added. Currently, the national cement industry consists of 15 integrated cement companies from Aceh to Papua with a total installed capacity of 116 million tonnes,
he explained. At present, our cement industry is still experiencing overcapacity of 51.8 million tons (45%).
Cement Capacity and Utilization
At the end of 2022, Heidelberg Materials estimated the country's installed cement capacity at 116.8 million tonnes. The company expects to grow to 119.8 million tons by 2025. At the same time, the company said that the utilization rate in 2022 is 54%, and it is not expected to exceed 56.9% by 2025. Cement demand in 2022 reached 63 million tons, down 3.5% from 65.2 million tons in 2021. The industry's health has deteriorated considerably since
2012, when capacity and demand were more or less in sync at 61 million tonnes per year and 55 million tonnes per year, respectively. The utilization rate in 2012 was also a record 92.9%. Since then, the gap between cement capacity and demand has been widening, with utilization rates nearly halved. In June 2023, total cement demand was 5.291 million tons, down only 1.1% from 5.35 million tons in the same period in 2022, but down 2.2% from 5.463 million tons in the same period in 2021. In the first half of 2023, the regions with strong growth in domestic cement production were Kalimantan, Bali and Nusa Tenggara, with an increase of 7.8%, 11.6% and 11.6% respectively. The solution for
domestic cement producers is to turn to the export market. "Total exports of cement and clinker increased by 11.57% in the first quarter of 2013 compared to the same period of the previous year," Warsito commented. This is in line with the growing demand in foreign markets.
Taking steps to reach net zero emissions
Although balancing supply and demand is a challenge for the industry, it has also been looking to build a more sustainable way of producing. India Cement is working with Amita Holdings, a Japanese environmental consultancy, on a two-year feasibility study to see how production can be made carbon neutral. This research will begin with trials of waste from alternative raw materials and municipal solid waste (MSW) using refuse-derived fuel (RDF).
Since December 2020, cement producers have increasingly had to consider alternative fuels as coal prices have risen sharply, which has increased production costs and created supply shortages. "Coal is the primary raw material and fuel for the cement industry, accounting for up to 40% of the production and cost structure," commented Mr. Warsito.
The Global Cement and Concrete Association (GCCA) and the Mission Possible Partnership have also put pressure on developing country governments to move from bagged cement shipments to bulk shipments. In addition, cement in Indonesia is usually mixed by hand on site, which may lead to inefficient use of the product. This method, without formal formulation or quality control, can lead to overuse of cement. By introducing bulk cement and ready-mix concrete services, emerging countries such as Indonesia can reduce the carbon intensity of cement. Parallel
to this initiative will be a "zero overload" policy for logistics costs. Currently, 80% of Indonesia's cement is transported by trucks, the size and volume of which can be adjusted to better maximize loading capacity. Prior to the implementation of the policy, the cement industry had submitted three proposals, namely to adapt the driver/Kir system (vehicle inspection) to vehicle design and road class, to implement a multi-axle policy and to improve the quality of road carrying capacity. As of November 2019, 73 vehicle weighing offices managed by the Director of the Land Transport Department of the Ministry of Transport found that 809496 (39%) of 207,398 vehicles had violated the regulations. The most common violation (84.43%) was overloading.
Summary
Indonesia is experiencing increasing industry pain as it tries to balance its installed cement capacity with export opportunities and more sustainable production. However, cement demand is not expected to improve sufficiently in the medium term, making it difficult to increase the level of low capacity utilization. Therefore, this will limit the construction of new factories and further investment in production capacity.
