Semen Gresik Plant Visit Notes (2011)

Poised to Benefit From Rapid Industry Growth
Last week, we visited the Tuban Plant and here are the key takeaways:
Remarks from Mr Dwi Sutjipto. Mr Sutjipto’s opening remarks summarize Semen Gresik’s (SMGR) medium-term strategy. He started off by highlighting that the progress of integration between the three companies within the group is now currently at the marketing and transportation division, with IT and human resources to follow later.

Then, he moved on to the most important part – the expansion and upgrading plan, which consists of: (i) Tuban 4 cement plant (commencement of operations set for Jan 2012), (ii) Tonasa cement plant (completion target date in mid-2012), and (iii) Tonasa power plant (completion target date in Oct/Nov 2012). After that, he also highlighted the ongoing power cost efficiency programme which uses low calorie coal mills (which is already implemented in Tuban), waste heat recovery gas, and alternative energy.

Towards the end, the audience was briefed on the company’s strategy to move closer to consumers by setting up packaging plants that are near areas populated by consumers.

2012 Overview
During the presentation and Q&A session, management said it is expecting around a cement industry growth of 5-7% and a growth of around 13% for SMGR in 2012. Its projected sales for 2012 is 2.5m tonnes higher than the sales projection of 19.6m tonnes for this year, while total installed capacity will reach around 25m tonnes, with contributions coming from the addition of Tuban 4 (2.5m tonnes), Tonasa (2.5m tonnes) and de-bottlenecking efforts (200-300k tonnes).

Furthermore, the Tuban 4 and Tonasa plants could still be further optimized to produce another 500k tonnes each, following their commencement. Management is also currently exploring the possibility of setting up more new plants to cope with the anticipated strong demand growth in the next 3–5 years.

Tuban Plant: Tuban 4, Debottlenecking and New Coal Mill
Existing cement mills in Tuban (Tuban 1-3 and Gresik) have 7.7m tonnes installed production capacity, which had been de-bottlenecked to reach the current actual capacity of 9.8m tonnes. Tuban 4 will add tonne capacity by another 2.5m, with a further 500k tonnes expected from subsequent capacity optimization. The completion of the new plant has already reached 97% as at end-November 2011, which is in line with company’s initial schedule, with operations slated to commence in January 2012.

Currently, the overall Tuban production facility already uses 50-50 mix of low calorie and mid-high calorie, as part of the ongoing energy efficiency programme. With the development of new low calorie coal mill that has a capacity that exceeds Tuban 4 needs, better control features (which help prolong plant operation days) and more advanced technology , management expects the Tuban plant’s overall input index to decrease by 1-2%. The Tuban low calorie coal mill is a pilot project that will be applied in its Tonasa and Padang counterparts, as well as in the company’s future undertakings.

New Tonasa Plant and Power Plant
The new Tonasa plant is 93% complete, which is behind the scheduled target of 99%, mainly due to weather disruptions that pushed the plant’s expected completion date to mid-2012 from the initial target of early-2012. As for the power plant, its completion is expected at end-2012. In the meantime, SMGR has already arranged a deal with Perusahaan Listrik Negara (PLN) to supply electricity to the new Tonasa cement plant.

Alternative Fuel and Waste Heat Recovery Gas (WHRG) Projects
The following is the schedule for the implementation of projects. For projects involving WHRG, the Semen Padang plant was chosen as the pilot project and it has already entered the commissioning phase in October 2011.

Packaging
As the part of its “going closer to the consumer” strategy, the company built two new packaging facilities in Banyuwangi and Sorong. It also has two other packaging facility projects in the pipeline in Pontianak (in due diligence phase) and Banjarmasin (at the stage of land preparation). SMGR’s prerequisite for building a packaging facility is that the surrounding areas, within the radius of 200km, must have an annual demand that exceeds 200k.

Trip to The Port
We also visited a port, which is located 9km from the Tuban plant. The port, which possesses a dwt capacity of 48k tonnes, serves as a facilities for downloading cement and downloading coal.

Trivia: Bottled Water
During the journey by bus, I received a bottle of water which was quite difficult to open (a futile 15-minute effort). To my shame, a SMGR female employee, who sat beside me, managed to easily open her bottle. I just realized that the bottled water was actually produced by SMGR’s subsidiary, Swabina Gatra. Initially, the subsidiary only provided outsourcing services to SMGR, but it has since expanded into the flight ticketing and bottled water business. By the way, I subsequently got a new bottle and managed to successfully open it in the end, cheers.