Several Indonesian ceramic producers reportedly stopped production over the summer as stocks of ceramics piled up at their warehouses. Normally, in the good old days when there existed high demand for ceramic products (due to Indonesia's booming property sector), stocks of ceramics lasted for only two weeks. Now, however, amid sluggish growth of Indonesia's property sector, the existing stocks of ceramics are estimated to cover at least three months.
Both sales and production of ceramic products in Indonesia have been on the decline. During June 2016, Indonesia's ceramic manufacturers cut production of ceramic tiles, by 5 percent when compared to the same period one year earlier. This decline is attributed to the slowdown in Indonesia's property sector, where, of course, the majority of ceramic demand has come from.
Elisa Sinaga, Chairman of the Indonesian Ceramic Industry Association (ASAKI), stated that at the start of the year he expected that the situation would improve for ceramic sales as there were high hopes that Indonesia's property sector would rebound supported by improving purchasing power, lower interest rates and Indonesia's tax amnesty program. However, matters have still not turned 'normal'. Indonesia's GDP growth was disappointing in the first quarter at 4.92 percent (y/y) and this undermines property sales and property development in Southeast Asia's largest economy. As such, the decline in ceramic sales has continued.
Indonesia's tax amnesty program, which is expected to lead to capital inflows into Indonesia's property sector, was only approved by Indonesia's House of Representatives (DPR) in late June and therefore could not boost ceramic demand in the first half of 2016. Although it remains uncertain whether the amnesty program will be a success, it may still be able to boost the nation's property sector (and thus ceramic demand) in the second half of the year.
Although state income through the amnesty program was disappointing in the first couple of weeks since its launch in mid-July, ASAKI Chairman Sinaga remains optimistic that the program will manage to boost Indonesia's ceramic industry in the last quarter of 2016 or the start of 2017 (the tax amnesty program runs until 31 March 2017).
We shall maintain a watching brief…