Indonesia Cement - Alert: Record Volume in June - Citigroup

 Very strong demand — Better weather conditions and robust demand lifted domestic cement volume in June to a record high of 4.1m tons, a 21% Y-Y surge and slightly higher than the previous high in May 2011. This brings 1H11 volume to 22.5m tons - a 15% Y-Y increase, much higher than our expectation of a 9% increase for 2011.
 Holcim Indonesia gained most market share — Holcim Indonesia (HI) continued to gain market share as it shifted its exports to the domestic market. HI's domestic volume surged 43% Y-Y in June to 672k tons. HI's market share improved to 15.5% in 1H11 from 13.7% in 1H10.
 Indocement maintained market share — Indocement managed to log an 18% Y-Y volume increase in June to 1.3m tons, bringing its 1H11 volume growth to 14.5%. Its market share was flat Y-Y at 31%.
 Semen Gresik’s growth capped by limited capacity — Semen Gresik Group's volume growth lagged the industry's at 14% in June. For 1H11, the group's volume was up only 10%, resulting in its market share eroding to 40.8% in 1H11 from 42.7% in 1H10.
 Tepid price hike — Despite robust cement demand, domestic cement prices continued to be tepid with the last price increases of c. 2-3% in the first two months of 2011. We expect the producers to increase prices by another 2-3% in 2H11 to pass on higher costs, notably stemming from higher energy costs.
 Preference — While Holcim Indonesia's growth is the most impressive this year, the company's apparent lack of transparency and management access could be a hindrance to share price performance. We maintain Indocement as our top sector pick as the company is the second largest beneficiary of robust cement demand and has good cost control. Gresik remains a Hold for its lack of capacity until 1Q12E.