Correcting the Market
The entrance of companies from China may correct the structure of the oligopolistic cement market. This will give advantage to local consumers.
There is nothing to be worried about concerning the entrance of cement products from China into Indonesia. Once they have fulfilled all investment requirements, the presence of foreign cement manufacturers will in fact correct the structure of the cement market which tends to be oligopolistic. In the final say, it is the consumer who will advantage, by being able to buy a lower-priced commodity.
The number of cement producers in Indonesia doubled in the last five years. Of seven companies noted in 2014, players in the strategic commodity have increased to 14 companies this year. Six of these companies come from China and one from Thailand. Conch Cement, one of the biggest cement companies in China, looks to be the most expansive since opening a plant in Indonesia in 2015.
The entrance of these new players indeed is related to escalating needs for cement in the past five or six years, when the growth of the property and construction sector seemed promising. Also, the government kept pressing the pedal on infrastructure development. The growth of domestic cement consumption of five to seven percent annually obviously needs to be balanced out with adequate supply.
It is excessive for accusations to emerge that the presence of these companies from China is causing oversupply of cement in the country. The domestic market is said to be burdened by an oversupply of up to 30 percent. Last year, cement production was estimated to have reached 110 million tons. Meanwhile, utilization of national cement factories only reached 73-74 million tons.
Yet the fact lies, the three biggest national cement players, Semen Indonesia, Indocement Tiga Roda, and Holcim Indonesia, still have a grip of over more than 80 percent of the cement market since 2010, and 99 percent in Java. Moreover, Semen Indonesia recently acquired Holcim with a total market share of more than 55 percent of the cement market last year. Conch Cement achieved 3.5 percent in 2017 and 4.6 percent in the first quarter of 2018.
All this while, the market for this important commodity on which infrastructure and property are dependent tended to be oligopolistic. The Business Competition Supervisory Commission (KPPU) in 2010 even suspected a cement cartel conducted by eight companies. The suspicion was based on the sales volume of cement which was only half their production capacity. Meanwhile, there was overdemand in the market place. Cement supply that practically had no movement and could not accommodate market demand caused the price of cement to keep on escalating between 2006 to 2010.
The KPPU determined no cartel existed for not finding any written evidence nor meeting documents to influence pricing and production as written in Article 11 of Law No. 5/1999 on The Prohibition of Monopolistic Practices and Unhealthy Business Competition. Ironically, the KPPU requested the government to disband the Indonesian Cement Association, which it deemed capable of facilitating price and production fixing. To date, the Association has never disbanded.
Oligopolistic practices, and moreover cartels, are most disadvantageous to the public. The more competitors in the cement market, regardless of where they come from, is beneficial for the consumer. Tight competition should make national cement producers wish to conduct efficiency, correct their supply chain, expand their distribution reach, even think about expanding into the export market. It is inelegant to tout nationalism and throw accusations about being pro-foreign companies into the fray at this time.