Jakarta – 3 December 2013 , In responding to the current weakening of the Rupiah against USD , Holcim Indonesia believe that most industries will be heavily affected. Jan Kunigk, Holcim’s Commercial Director, said the price rises will impact most industries especially capital intensive ones and such with a high degree of costs denominated in USD. Unfortunately these cost rises need to be passed on to consumers in the form of price increases, especially if the government could not help to raise up its Rupiah rate.
The recent re-rating of the Rupiah, falling by 20% against the US Dollar were reactions to the widening current account deficit, surging US dollar demand for earning repatriation and foreign debt payment and the external factor of potential tapering of the Federal Reserve’s QE initiative. Additionally, inflation in November 2013 has soared to around 8.3%.
Kunigk stated “In Holcim Indonesia very significant cost increases were observed in the areas of advertising, logistics, energy and wages in 2013. Financial cost also increases due to higher interest rate and depreciation of Rupiah to support our expansion in Tuban”.
To mitigate the impacts Holcim Indonesia implements internal initiatives such as cost leadership programmes to save energy and deliver value added solutions without compromising on quality to ensure Holcim cement remains competitive. The initiatives supported Holcim Indonesia to delay passing on the cost increases to the end customer. Nonetheless not all could be recovered and this needs to happen now in a phased manner to reduce further margin erosion mentioned Kunigk. He expects to see price rises, as happened recently, across the various heavy industries in response to the rupiah weakening and general cost increases continuing in 2013 and 2014 to cover at least inflation. In 2014 Holcim Indonesia expects inflation in the range of 7.0-7.5%.
Market Outlook and Growing Middle Class Housing Demand
Pent up demand for housing is still evident – with an additional 800,000 homes required each year and while the level of residential mortgage debt to GDP remains low, slower credit growth a higher interest rate, and the higher inflationery environment will potentially have an dampening effect on demand over the immediate future. Credit growth for the first nine months was 23% but Bank Indonesia expects this to slow to 18-20% for the year overall and to a range of 15-17% in 2014. Bank Indonesia’s 30% downpayment requirement for mortgage loans is another factor to be considered in holding back real estate developments, while city apartment prices are staying firm as demand for investment properties still rises – given the recent weakening of the Rupiah.
Brighter prospects for the construction sector and the cement industry are in evidence over the medium term. General sentiment indicates any change of Government in second half of 2014 is not likely to impact core macro-economic policies. The latent demand for homes has not diminished, the authorities resolve to curb current inflation has been applauded and Indonesia has had its investment grade reaffirmed by leading sovereign ratings agencies Moody’s and Fitch. National debt to GDP ratio at just 25% is a prudent base from which to grow.
Kunigk also stated, “Holcim Indonesia is commissioning its new Tuban 1 cement mill in East Java now. With Tuban 1 operating Holcim Indonesia will be able to fulfil the customer upcoming demand with locally produced highest quality cement in the areas of East Java and inter island markets with lower cost to serve and being able to offer much more reliable supply. Overall we target a significant increase in market share in these areas”.
He added that Holcim, as a premium brand, does not compete solely on price but rather on value, which was a competitive advantage. “As a premium cement brand, at Holcim Indonesia goes the extra mile to add value to our products for our customers in terms of on-time delivery and a smooth, reliable supply along with other innovative solutions, like our Minimix trucks that go where bigger trucks can’t, our Solusi Rumah franchise for home builders and developers, and specialized products like SpeedCrete which can be used to quickly and safely fix broken roads and buildings ,” Kunigk said.
“For this reason, we are confident our customers will further have a preference for Holcim,” he closed. Ends
About PT Holcim Indonesia Tbk
PT Holcim Indonesia Tbk (Holcim Indonesia) is a publicly listed company which its majority stake (86.35%), is owned and managed by Swiss-based Holcim Group, one of the world’s largest cement companies with more than 85,000 employees and production capacity of more than 170 million tons of cement.
As one of the largest cement companies in Indonesia, PT Holcim Indonesia Tbk maintains integrated businesses of cement, ready-mix concrete, and aggregates production. The company operates three cement plants in Narogong-West Java, Cilacap-Central Java, Tuban 1-East Java and a grinding facility in Ciwandan-Banten with total capacity of 11 million tons of cement and employs more than 2,500 employees.
PT Holcim Indonesia Tbk operates a domestic building material supply network, which covers special distributors, retailers, masons, and Solusi Rumah outlets – the outlet provides housing design service, building materials, building consultation, and financing access. All under one roof.
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