Domestic Profits

According to the industry sources, Indonesian tile market is expected to nearly double to US$4.4 billion in 2026 from present about US$2.3 billion. Major players, such as, PT Muliakeramik Indahraya, PT Arwana Citramulia Tbk. PT Roman Ceramics, PT Platinum Ceramics Industry, PT Keramika Indonesia Assosiasi (KIA), Niro Ceramics Indonesia, are dominating in the domestic markets. 

In 2016 an estimated 50-60 million sq meters of tiles were imported into Indonesia. The main supplier is China, which has enough surplus capacity to meet the demand of Indonesia and other Southeast Asian countries, being the world's largest producer and exporter. Tile imports into Indonesia grew 27 percent in 2016. according to the industry sources. The tile manufacturers said most buyers are now retailers, while sales to projects did not pick up this year as expected. 

However, some dynamic producers for the mass markets is still doing better the domestic market. Companies like second largest and world's 14th top producer, Arwana Citramulia with production capacity of 57.4 million sq meters a year, is continuously expanding capacity and operating on profit.

Indonesia's largest and the world's 5th top tile manufacturer Mulia Ceramics (Muliakeramik Indahraya) also have recently increased production capacity to 80 million sq meters and was able to sell a large quantity of tiles last year, although, the return was not much favourable. "Operating margin dropped due to a tense market competition," said Eka Tjandranegara, President Director of Mulia Group (PT Mulia Industrindo Tbk).

Unsold Stock

Many factories have large backlog of unsold stocks. Mulia is under pressure of a severe inventory that now forces the company to raise its annual sales to 100 million sq meters, which is over 25 percent larger than its installed capacity, while export has dwindled to only three percent last year due to unfavorable prices, particularly in USA, its main export market. 

Weak demand for ceramic tiles prompted severe price competition in the market. As a result, selling price tumbled throughout 2016, as each tiles producer strived to maintain its market share. As unsold stock piled up, many large manufacturers cleared their stock causing difficulties to many others results in controlling capacity utilization.

Amidst tight competition, Mulia managed to keep its sales volume at 77.943 million sq meters last year. Mulia was under pressure to clear its warehouse. Due to stockpiling of unsold tiles, it needed massive sates. 'As the domestic market is stagnant since past couple of years, against the huge sales target of 95.055 million sq meters in 2016, the achievement was quite big with 82 percent," said Eka. 

Mulia said domestic market is now more rewarding compared to exports to traditional markets, particularly, USA. It has been selling large unsold stock in the domestic market without looking back towards export markets. Indonesia's leading exporter Mulia faces an exchange rate fluctuation exposure since its US revenues in US dollar is lower than production cost. Mulia's domestic market continues to remain supportive. Sates volume proportion between domestic and export remained at 97 percent and 3 percent of total sales. 

Still some hope is there for increase of exports. Many of the manufacturers are confident that exports will rise from this year. The demand for Indonesian tiles in other ASEAN countries is expected to grow soon as the products will regain competitiveness due to lower production cost following reduction of gas price to US$6 per mmBtu, from the current US$8-US$10, per mmBtu. The manufacturers are expecting their products would be competitive in the export markets, as well as in the domestic markets, when gas price is lowered as assured repeatedly by the government recently. In Indonesia, at the moment, gas accounts for 30-40 percent in the production cost of tiles and other ceramic products, according to ASAKI. 

Problems, problems 

Indonesian tile sector is now faced with multiple problems. Since last three years the tile industry is adversely affected by the increase of gas prices to about US$8.1 per mmBtu in East Java region to about US$9.2 per mmBtu in West Java, and to nearly US$10 per mmBtu in North Sumatra region. Higher gas prices discourage new investment In ceramics.

According to the Indonesia Investment Coordination Board (BKPM), foreign direct investment is mostly going to those sectors which are less energy-intensive. Wages and salaries are also increasing continuously. Currently minimum monthly wage is US$300, according to ASAKI.

Appreciation of Indonesian currency Rupiah (IDR) against US dollar, its international trading currency, reduces the export revenues. Tile manufacturers who export are badly frustrated, as export receipts cannot ensure profit. Mulia said exports to its major market, USA, is not viable enough as the export revenue earned from USA cannot meet production cost in IDR due to exchange rate problems.

(Edited from Asian Ceramics AC17-9)