Opportunity knocks in Indonesia

The building of Indonesia’s new capital city and other big infrastructure projects offers exciting commercial opportunities for construction materials suppliers and off-highway equipment manufacturers
August 21, 2023
By Guy Woodford
A Hyundai HX500 L excavator loading a Rokbak ADT for PT Hillcon in Weda Bay, North Maluku. Pic: Rokbak
A Hyundai HX500 L excavator loading a Rokbak ADT for PT Hillcon in Weda Bay, North Maluku. Pic: Rokbak

On an island on the edge of the Pacific Ocean, 2000km northeast of Java, a trio of Rokbak RA40 haulers are operating across a 45,065-hectare mining site.

At this remote location in North Maluku, Indonesia, the Rokbak articulated haulers operate up and down steep inclines, through mud, dirt, grit and gravel, for almost 24 hours a day, in 30°C heat and at the mercy of the Southeast Asian elements.

Required to move around 450 tonnes of biomass and quarry materials in a single day, each RA40 will record approximately 6,000 operating hours per year. The haulers are tasked with removing overburden and providing mine development support for the acquisition of high-demand nickel, the harder-than-iron metal used in some form in practically every aspect of day-to-day life. Every full-capacity payload sees each RA40 transport overburden two kilometres to a project access road and biomass dump for disposal.

PT Hillcon operators like the visibility and comfort that the Rokbak RA40 provides. Pic: Rokbak
PT Hillcon operators like the visibility and comfort that the Rokbak RA40 provides. Pic: Rokbak

Nickel is found everywhere. It’s in coins, turbine blades, stainless steel, kitchenware, mobile phones, laptop computers, and television sets. The fifth-most common element on the planet, nickel sulphides develop in environments by spreading tectonic plates in the Earth’s crust and core. Corrosive-resistant, strong at high and low temperatures, durable and able to be utilised in many ways, nickel’s MO could be strapped to the side of a Rokbak.

PT Hillcon is one of Indonesia's most significant names in the construction, mining, property and heavy-equipment industries. Since its beginnings in 1995, the company has completed hundreds of projects across the archipelago in coal and nickel operations. Its current occupation in the world-class nickel deposit of Weda Bay, in North Maluku, is a five-year process that began in September 2021. It will last until Q4 2026, when PT Hillcon will have produced an estimated four million tonnes of nickel.

PT Hillcon’s three Rokbak haulers were acquired through Rokbak dealer PT Uniquip, an equipment supplier based in Jakarta. With Hillcon’s nearly three decades of experience in the industry and 100 ADTs in its fleet already, PT Uniquip helped highlight why Rokbak haulers would be well suited to PT Hillcon’s demanding work.

PT Hillcon is one of many Indonesian construction company success stories. Like its domestic competitors, it is based in the world’s fourth-most populous country, home to around 270 million people. The good news for PT Hillcon and its construction firm rivals is that Indonesia urgently needs new public infrastructure, including modern housing and commercial buildings. The country is also the largest county in ASEAN (Association of Southeast Asian Nations), with a land area of 1.919 million km², a sea area of 3.16 million km² (exclusive economic zone) and huge mineral resources.

Asian Insiders, a network of in-country business experts providing the inside track to entering and succeeding in business in Asia, quotes a Bandung Institute of Technology estimation that Indonesian cement consumption is set to rise by a third to 84 million tonnes per year (from around 65 million tonnes/year) following the July 2022 start of construction of the country’s new capital city, Nusantara.

Situated on the east coast of the island of Borneo, Nusantara is scheduled to be inaugurated on 17 August 2024, coinciding with Indonesian Independence Day. Nusantara will replace Jakarta as the national capital, a position the latter city has held since the country's independence in 1945.

PT Hillcon site operators at the world-class nickel deposit of Weda Bay in North Maluku. Pic: Rokbak
PT Hillcon site operators at the world-class nickel deposit of Weda Bay in North Maluku. Pic: Rokbak

Nusantara is expected to encompass an area of 2,560km², surrounded by hilly landscapes, a forest, and a natural bay. The city’s 'Government Central Area Zone' will comprise government offices, schools, and hospitals.

Industry analysts believe the Asia-Pacific region, including Indonesia, Malaysia, Vietnam, Thailand, the Philippines, and other countries, will have the fastest demand for sand- and stone-aggregate growth, with the market demand reaching 51.7bn tonnes.

In the third quarter of 2022, Statista, a leading business market and consumer data provider, reports that around 46.43 million tonnes of cement were used in Indonesia. Consumption of building materials, particularly cement, is driven by the country’s president, Joko Widodo, and his administration’s programme to improve basic national infrastructure, such as roads, airports, and seaports. The COVID-19 crisis has, however, put a stop to some of Indonesia's infrastructure-building initiatives, thus reducing domestic cement consumption. The same source also reports that in 2021 the total volume of sand produced in Indonesia amounted to approximately 67.41 million m³. In comparison, just over 373 million m³ of sand was produced in Indonesia in 2015.

In recent decades, Statista notes that Indonesia’s infrastructure development has focused on Java Island, its most populous island, and its current capital city, Jakarta. In 2021, the value of total construction completed in Jakarta was over forty times more than in Bali and thirty times more than in Papua, showing a huge infrastructure gap. Statista says Indonesia’s president, Joko Widodo, has significantly increased the country’s infrastructure budget since 2014 to reduce development inequality across the archipelago. One of the ongoing infrastructure projects of the current Indonesian government is the construction of 2,650 kilometres of toll roads, scheduled for completion in 2024.

Until April 2022, Indonesia had successfully built 1,900 kilometres of toll roads- far more than the total amount constructed in the last 40 years which was only 780 kilometres. Following the government’s expansive infrastructure agenda, Statista states that Indonesia's cement producers, such as Indocement and PT Semen Indonesia, have boosted their annual production in the past few years. In 2019, Indonesia’s largest cement producer, state-owned Semen Indonesia, increased its annual cement production capacity by around 40%. As a result, Indonesia ranked as the sixth-largest cement-producing nation in the world in 2021.

President Joko Widodo answering reporters’ questions in the Indonesian city of Solo
President Joko Widodo answering reporters’ questions in the Indonesian city of Solo

In 1991, PT Semen Indonesia, commonly known as Semen Indonesia Group (SIG), was the first state-owned enterprise that went public on the Indonesia stock exchange.

The company maintains an annual production capacity of 51 million tonnes, shipped to customers across Indonesia, Sri Lanka, United Arab Emirates, Yemen, Philippines, China, Australia, India, Bangladesh, Africa, Timor-Leste and other countries.

The company has cement plants in Lhoknga in Aceh, Indarung in West Sumatra, Narogong in West Java, Rembang and Cilacap in Central Java, Gresik and Tuban in East Java, Pangkep in South Sulawesi and also in Vietnam. It represents about 53% of Indonesia’s domestic cement sales.

SIG strives to improve its capabilities to continue growing amidst hypercompetitive market conditions and the still-not-fully-defeated coronavirus pandemic. The company focuses on developing innovations to answer the challenges in building materials and provide solutions to all stakeholders.

Speaking in November last year, SIG director of finance and risk management, Andriano Hosny Panangian, said that amid hypercompetitive market conditions, the company continues to create opportunities by developing diversified products and services to strengthen its position as a sustainable building material solutions provider.

“SIG is a leading building material solutions company in Indonesia. In addition to controlling the largest domestic cement market share, SIG now has various cement derivative products with a complete range of specifications and support service solutions to meet building conditions requirements according to customer needs wherever they are.”

SIG has five strong cement brands and is the market leader in its respective regions, including Semen Gresik, Semen Padang, Semen Tonasa, Dynamix and Semen Andalas. Furthermore, SIG has integrated cement factories in eight locations, packaging factories in 26 locations, six cement mills and seven ports. Meanwhile, the distribution channel is strengthened by 306 distributors in Indonesia and Vietnam (TLCC) and 70,000 retail stores in Indonesia.

Panangian added: “SIG offers multipurpose bagged cement products for special applications that are more economical, as well as various types of bulk cement according to the characteristics of each type of project so that it is more efficient and effective. Marketing of SIG products is getting stronger with the presence of three digital platforms, namely SobatBangun, AccessToko and SIG online store that make it easier for customers to get services in terms of development.”

SIG also features concrete solutions, such as SpeedCrete, for high-performance, early-strength road repairs that dry in hours. Then there is ThruCrete, a highly absorbent concrete product to minimise waterlogging. SIG has also launched the first HE-type hydraulic cement product innovation in Indonesia, which has passed the test at the Product Certification Institute (LSPro) of the Center for Materials and Technical Goods (B4T) of the Ministry of Industry.

A Cat motor grader being rebuilt in the state-of-the-art workshop of Cat dealer PT Trakindo Utama in Balikpapan on the island of Borneo

“The products produced by SIG have been recognised as environmentally friendly products with the achievement of Green Label Certification from the Green Product Council Indonesia (GPCI). They have obtained a Self-Declaration Ecolabel certificate from KLHK, and became the first in Indonesia, and a Level 5 Green Industry award from the Ministry of Industry. SIG presents solutions that meet stakeholder expectations and become a driving force in the growth of the building material industry that pays attention to sustainability,” explained Panangian.

Regarding the main opportunities for Caterpillar's business in Indonesia’s aggregates and quarrying market, Rahul Srivastava, Industry Solutions manager - Quarry & Aggregates (Asia-Pacific), Caterpillar, says: “During the last decade or so, the Indonesian construction industry has been growing supported by many government initiatives that have driven demand for the quarry & aggregates industry. Caterpillar and its dealer PT Trakindo Utama offer a wide range of products and services to support their customers, from machine sales to parts, on-board and off-board technology, equipment rental and financing.

“In recent years, quarry operators upgraded their fleet with Cat Next Gen machines for more efficiency, productivity and advanced technologies. To assist with maximising machine life, Caterpillar and PT Trakindo Utama provide solutions that support a lower carbon footprint, such as Cat Reman and Cat Certified Rebuild programmes which can deliver considerable cost savings and help lower operating costs overall.

Srivastava says PT Trakindo Utama offers a preventive maintenance programme through customer value agreements (CVA) ownership plans and maintenance and repair contracts (MARC) which guarantee maintenance. “For small to mid-size quarries, CVAs are available with a fuel guarantee, preventive maintenance parts kits, equipment protection plans, connectivity through VisionLink, and equipment financing,” he explains.

Asked about the levels of demand for aggregates in Indonesia, and which types are in most demand, Srivastava responds: “After a subdued demand during the COVID period, aggregates demand bounced back in 2022, growing at around 5% although starting back from a low base. It is anticipated the momentum will be maintained during 2023 and 2024 to reach or exceed the pre-COVID level. The increase in demand is supported by the acceleration of many projects which were either pending or progressing at a slower pace during the COVID restrictions.

“Sand and crushed stone (Andesite, basalt) are two high-demand construction materials. Sand is a key raw material for construction and constitutes the lion’s share of the total aggregate demand.”

Srivastava notes that some environmental and bio-diversity degradation restrictions are making sand a constrained supply. Indonesia has good reserves of andesite, primarily used for rail ballast and road construction. He says the focus on dam and rail-network construction mainly drives the demand for those two construction raw materials and the regular demand for housing construction.

“The demand for limestone used in cement production will also grow, albeit at a somewhat smaller pace,” he concludes.


GlobalData forecasts Indonesian market growth

The Indonesian construction market size was $243.2 billion in 2022, according to GlobalData, a leading business market intelligence consultancy. The market is projected to achieve an AAGR (average annual growth rate) of more than 5% from 2024 to 2027. The industry’s output in 2023 will be supported by the government’s focus on infrastructure development.

GlobalData states that the key sectors in the Indonesian construction market are;

  • Commercial construction 
  • Industrial construction
  • Infrastructure construction
  • Energy and utilities construction
  • Institutional construction
  • Residential construction

The commercial construction sector, including leisure and hospitality buildings, office buildings, outdoor leisure facilities, and retail buildings, is expected to remain weak in 2023, owing to rising inflation and the relative weakness of the tourism sector. However, GlobalData expects it to record an average annual growth rate of more than 5% from 2024 to 2027, supported by an anticipated improvement in construction demand in the leisure and hospitality sector, coupled with investment in office, retail, and data centre projects.

Industrial construction project types analysed by GlobalData include chemical and pharmaceutical plants, manufacturing plants, metal and material production and processing plants, and waste-processing plants.

“The industrial construction sector is expected to expand in 2023 before registering an annual average growth of more than 4% from 2024 to 2027, supported by an increase in manufacturing production and investment in the mining and automotive manufacturing sectors,” says the business market intelligence firm.

Indonesia’s infrastructure construction sector, including rail and road projects alongside other infrastructure works, is tipped for growth by GlobalData due to significant government investment in transport projects to improve regional connectivity.

© Paulus Rusyanto | Dreamstime.com

GlobalData expects Indonesia’s energy and utilities sector to grow in 2023 and record an annual average growth of more than 5% from 2024 to 2027, supported by investment in power, oil and gas, and telecommunication projects.

Public investment in Indonesian health and education projects will, says GlobalData, support growth in Indonesia’s institutional construction sector, coupled with the government’s focus on improving the country’s healthcare infrastructure to lower the number of Indonesians seeking medical services abroad.

Growth in Indonesia’s residential construction sector, including single- and multi-family housing, will, GlobalData predicts, be affected this year by rising borrowing costs, tighter lending requirements and slowing housing sales.

However, the government’s plan to construct five million housing units by 2027 will support the sector’s recovery from 2024, the same source forecasts.

In an eye-catching construction materials sustainability development, it has been reported that Indocement Tunggal Prakarsa has engaged Japan-based environmental consultancy Amita Holdings to support a two-year feasibility study to investigate ways to make its cement production carbon neutral.

The study will reportedly commence with trials of industrial waste as alternative raw materials and municipal solid waste as refuse-derived fuel.

Amita Holdings says it is building a recycling-based society in Indonesia in partnership with Indocement Tunggal Prakarsa.

Amita Holdings supported the establishment of the community-led Meguru waste-sorting facility in Central Java. Two of Indocement Tunggal Prakarsa’s cement plants - the 18-million-tonnes-a-year Citeureup cement plant and the 4.1mn-tonnes-a-year Paliman cement plant – are in neighbouring West Java.

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