Ceramics Industry in Indonesia 2010

INDONESIAN COMMERCIAL NEWSLETTER

September 2010

CERAMIC INDUSTRY: EXPANDING AMID MARKET SLUMP

Property industry, which has continued to expand in the past several years, will help boost ceramic industry in the country. Demand for ceramic floor tiles, sanitary ceramics and other ceramic products would increase. The country's ceramic production capacity and production have increased. A number of producers have also planned capacity expansion.

Expansion of the industry, however, is hampered by a number of factors - shortage and uncertainty in gas supply and dependence on imports for part of the basic materials. The government has not succeeded in coping with shortage in gas supply despite the fact that the country is a major exporter of gas.

Another problem is large imports of cheap products from China making local products less competitive. Call for slapping of Indonesian National Standard on imported products is growing in a bid to put a brake on imports of low quality products. Meanwhile banks are not all eager to finance investment in ceramic industry.

Capacity growing again

Ceramic products in Indonesia consist of ceramic tiles, household ceramics (tableware), and sanitary ceramics.

Increase in the capacity of the country's ceramic industry began only in the past two years. The production capacity of ceramic tiles rose 7.5% from 4,86 million tons per year to 5,23 million tons per year. The production capacity for sanitary ceramics rose 2.8% in 2008 to 58,300 tons per year and up again 1.2% to 59,027 tons per year in 2009.

Currently Indonesia is the sixth largest producer of ceramics in the world. There are 60 ceramic producers in the country including 42 producers of ceramic tiles and 15 producers of ceramic table ware and 3 producers of sanitary ceramics.

In 2010, a number of producers expanded their production capacity such as PT Puri Kemenangan Jaya, the producer of the brand of Centro with factories in Cileungsi, Bogor. The company increased its monthly capacity by 600,000 square meters bringing its total production capacity to 12 million square meters per month at present. The company invested Rp300 billion for the capacity expansion

In the same year, PT Arwana Citramulia Tbk invested Rp 48 billion to increase the production capacity of its factory in Cikande, Serang, Banten, from 17 million square meters per year to 19 million square meters per year. The new production line is called Plant 2C Extension having a capacity of 2 million square meters per year. This production unit is to start operation in the last quarter of this year production 20 cm x 25 cm wall ceramics.

Arwana operates four factories in Tangerang, Serang, and Gresik and a new one in Cikande with total production capacity 38,87 million m². The factories in Tangerang and Serang supply the market in western part of the country and the one in Gresik for the eastern regions of the country.

Production fluctuating

The country's ceramic industry is expected to expand in the coming years as indicated by the expansion of production capacity. The capacity expansion has been designed to keep pace with growing demand such as in 2006 and 2007 . Growing demand boosted production . During the two years, production grew 8% to 3.77 million tons in 2006 and 26% to 4.75 million tons in 2007 .

The global economic slowdown in 2008 followed with financial crisis later that year caused a deep market slump in 2009. Many property projects were shelved and the impact was bad for ceramic industry which was forced to cut production.

Production shrank 13.5% in 2008 to 4.11 million tons and it fell further by 16.7% in 2009 to 3.42 million tons.

The cut in production was sharper for ceramic tiles and ceramic household goods. The slump hit not only domestic market but also international markets notably the European and US markets. The setback forced producers to reduce working time from 3 to 2 shifts. Around 80% of producers cut working time by 4 hours a day in 2009 in a bid to maintain efficiency.

Among the companies cutting working time included PT Mulia Keramik Indah Raya, PT Arwana Citra Mulia Tbk, PT Kemenangan Jaya (producer of Sahara brand), and PT Lucky Keramik. Most of the companies produce ceramic tiles and tableware.

Attempts to increase sales to other markets such as in Asia and Africa to offset a decline in exports to the United States and Europe did not very successful. The exports to the new markets contributed only up to 8% to the total sales.

The country's production began to recover in 2010 with the improvement in the country's economic condition. A number of players are set boost production. Arwana sets production target at 37.16 million square meters in 2010 or 23.87% higher than 30 million square meters in 2009 .

Exports

Around 16% of the country's production of ceramics is exported. The main markets so far have been Europe and the United States. Other smaller markets are other Asian countries and Africa.

The Unites States has accounted for 12% of the country's exports making it the largest export market. The second largest is Europe accounting for 8%, followed by Australia for 5% of the country's total exports. Other smaller markets are other countries in Southeast Asia.

In 2008, exports to the United States were valued at US$46.4 million or 16,89% of the country's total export earning, to South Africa valued at US$ 29.1 million or 10.57% ; to Japan US$ 23.4 million or 8.5% , to South Korea US$ 20 million or 7.,28% , Britain US$ 16.9 million, Australia US$ 14.2 million and Taiwan valued at US$13.9 million.

Exports have been dominated by ceramic tiles accounting for 89%, with tableware and sanitary ceramic accounting for 7% and 4% respectively.

Exports in the past few years have tended to decline notably in 2009 when export shrank as much as 51.3% to 206,928 tons - down from 425,249 tons in the previous year. The decline followed weak demand from the traditional markets of Europe and the United States which was hit the hardest by the financial crisis.

Until now the European and US economic condition has not fully recovered. The association of ceramic industries (Asaki) said the country's exports of ceramics are estimated to reach only US$ 120 million in value this year far short of its previously set target of US$ 300 million. In the first nine months of this year exports were worth only US$ 60 million.

To the United States is expected to grow only 2% as against the growth target of 8% from 2009. Producers, therefore, are seeking to increase sales on the domestic market hoping to make up for part of the decline in exports .

Export value

Despite a decline in the export volume in the past several years, in 2008, a 3.6% increase was recorded in the export earning in 2008 when exports were valued at US$ 218 million - up from US$ 210.8 million in 2007. In 2009, however, the export earning shrank 31.7% to US$ 149 million .

Ceramic tiles also dominated the export earning. In 2008, exports of ceramic tiles were valued at US$ 99.01 million; followed by ceramic tableware worth US$ 84.73 million, and sanitary ceramic US$ 34.75 million.

The export value of ceramic tableware was almost the same as that of ceramic tiles as the price of tableware is much higher.

A sharp fall in the export value in 2009 resulted in a steep decline in the ceramic tile export value to US$ 42,9 million. The decline in exports of tableware was not very significant that its export earning remained relatively high at US$79,3 million.

Competition with imported products

Imports of ceramics fluctuated from year to year in 2005 - 2009 period. Imports rose 1.7% to 212,318 tons in 2006, but fell 14.7% to 181,011 tons in 2007. In 2008, imports surged again 24.6% to 225,564 tons, before shrinking again in 2009 to 125,223 tons as a result of he economic slow down. Imports have been dominated by ceramic tiles, followed by tableware and sanitary ceramics.

Among major producers of ceramics in the world are China, Italy, Spain, Turkey, and Brazil. Indonesia imports ceramics mainly from China. Chinese products are known to be cheap in prices making them the main competitors on the domestic market.

Local products, however, are still quite competitive facing the Chinese products . The government provides protection for local producers by including ceramic products in the category of sensitive list with import duties of 20%-30% until 2018. .....

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