Two of Indonesia's major cement producers plan to increase their production capacity to meet rising domestic demand, but they remain cautious about potential shifts in market conditions that could push up costs.

Publicly listed PT Indocement Tunggal Prakarsa (Indocement), the country's second-largest cement maker, said Thursday it expected to raise its production capacity to 21-22 million tons, from its current 17.1 million tons, over the next four years.

The company is now in the process of constructing a new cement mill in Cirebon, West Java, which is due for completion in late 2009 and will have a production capacity of 1.2 million tons per year.

It is also looking into building another two or three new cement mills, modifying existing kilns and building a new kiln.

Any new mill construction and kiln modification can be completed in 12 months at an investment of $40-$50 per ton of production capacity. A new kiln, however, takes three years to build with a capital injection of $160-$200 per ton of production capacity.

"The realization of the projects depends on the results of our research and market conditions. If coal and raw materials become more expensive, that may cut into our margin too much," company secretary Dani Handayani said.

National demand for cement rose 21 percent in the first semester of this year, driven by high-rise and residential construction. The Java market grew by 17 percent and outside Java 26 percent.

The Association of Indonesian Cement forecasts national cement consumption to grow by 7 percent this year from 32.05 million tons last year.

Indocement has experienced a 14 percent increase in sales this first half, selling 7.4 million tons of cement, up from 6.5 million tons last year. Its target was 13 percent overall full-year sales growth.

Around 85 percent of the products were for domestic consumption. Its market share rose to 32.5 percent from 30.3 percent last year.

"We are prioritizing the domestic market rather than exports because of the higher profit margin. Cement is a heavy product that costs a lot to transport," Indocement finance director Christian Kartawijaya said Thursday.

The company's net profit from January to June rose to Rp 771 billion (US$83.8 million) from Rp 360 billion in the same period last year.

Meanwhile, PT Semen Gresik, the country's largest cement company, will spend $1.25 billion to built two new cement factories and 10 power plants to help meet rising demand.

The factories, to be built in Java and Sulawesi next year, will produce a total of 5 million tons of cement annually. The plants will have a total capacity of 410 megawatts.

Finance director Cholil Hasan said Thursday the company would invest around $670 million for the factories and more than $573 million for power plants.

President director Dwi Soetjipto said in the first half of this year, the company recorded Rp 1.13 trillion in net profit, a 62.76 percent increase from Rp 699.6 billion in the same period last year.

"The increase was driven by higher revenue, amounting to Rp 5.69 trillion, an increase of 28.6 percent from last year's Rp 4.42 trillion because of higher sales prices and demand," he said.

PT Humpuss Intermoda Transportasi, a top publicly listed shipping company, plans to spend more than US$1.1 billion in the next four years to buy 29 vessels, to support business expansion.

President director Agus Darjanto said Monday funds would come from a combination of internal and external sources, including the selling of defunct vessels, bonds and a rights issue.

Of the total 29 vessels, the company has already purchased 6 up to the end of the first semester this year, for $114.6 million.

"Until 2012, we will buy nine dry bulk vessels, nine chemical tankers, four floating loaders and one container vessel," he said.

In the second half of the year, the company will buy 1 more vessel worth more than $70 million. Next year, Agus said, it will buy four more vessels worth $180.6 million. From 2010 to 2012, it will spend $250 million each year, to complete purchases of a fleet new fleet of 18 vessels.

"This year we are planning to issue a global bond worth $150 million to finance part of the procurement. But we're still waiting for the yield to reach 9 percent," Agus said, adding that the yield currently stood at 11 to 12 percent.

Although the company had not decided the date of the bond issuance, it has conducted roadshows targeting some countries in Europe, Asia and the Middle East, to promote the bond.

As of the end of June, Humpuss currently had 24 vessels.

In January-June this year, the company booked a 18.55 percent increase in revenue to Rp 454.23 billion, compared to Rp 383.15 billion booked in the same period last year.

"This has pushed our net profit by 35.31 percent in the first semester to Rp 100.75 billion from Rp 74.48 billion," he said.

Humpuss has three subsidiaries, PT Humpuss Sea Transport Pte. LTd, PT Humpuss Transportasi Kimia, and PT Humpuss Transportasi Curah, which operate in eight divisions, including gas, oil, chemical and dry bulk transportations, industrial coal supply chain and ship agency services.

Two of Indonesia's top retailers may have recorded strong sales performances in the first half of the year in spite of high inflation and a weakened public spending power, their executives say.

While their first semester financial reports are yet to be completed, PT Matahari Putra Prima and PT Hero Supermarket — the nation's largest and third largest retailers — are eyeing growth in sales.

Matahari Putra Prima said Friday sales in the January to June period this year may have risen 15 percent compared to in the same period last year.

"We haven't completed our financial report for this first semester, but I can say that our sales will still increase — mainly driven by higher demand; not higher selling prices," communications director Danny Kojongian said.

Many producers increased their selling prices by 5 to 6 percent after the government upped subsidized fuel prices in May.

The country's year-on-year inflation rate increased 11.03 percent in June.

In the first six months of 2007, the company booked Rp 4.15 trillion in revenue, a 19.5 percent increase from Rp 3.48 trillion in 2006. Full-year sales reached Rp 9.8 trillion.

PT Hero Supermarket reported a 10.9 percent rise in non-audited sales in the year's first semester to Rp 2.73 trillion from Rp 2.46 trillion in the same period last year.

Corporate secretary Vivien Goh said the increase was mainly driven by the company's business expansions and re-branding program.

Hero's operational income rose to Rp 55.6 billion in the period due to higher margin costs, she said.

However, the company chose not to reveal its net profit.

In the first six months of last year, Hero booked Rp 25.1 billion in net profit, higher than Rp 11.2 billion a year earlier. For the whole year of 2007, Hero recorded Rp 5.14 trillion in sales.

However, both companies were cautious in estimating their second semester economic performances.

"The impacts of the raised fuel prices will definitely continue to hit us in the second semester but we have prepared some anticipatory measures, including some saving measures for our expansion plans," Danny said.

Matahari plans to open six department stores and seven hypermarts this year with an allocation of Rp 1.1 trillion. It is also targeting a 15 percent growth in business this year.

Matahari has 80 outlets throughout the country; Hero has 391.

Indonesia's tea exports may increase 8 percent this year on the back of stronger demand, an industry player says.

The national tea council chairman Abdul Halik said Tuesday tea shipments this year may increase to 102,600 tons of green and black tea from 95,000 tons shipped out last year.

"International demand for our tea will likely increase as demand for tea from Kenya and Srilanka — the world's largest tea exporters — is predicted to decrease this year," he said.

The country mostly ships the commodity to countries in Europe, the Middle East, the United States and Eastern Europe.

Indonesia, the world's sixth-largest tea producer, holds six percent of the global tea market, trailing Vietnam, which has 7 percent, India at 13 percent and Kenya and Srilanka, which both hold 20 percent, according to the council.

However, Halik said domestic demand would likely remain constant as Indonesians were yet to view the drink as anything more than a refreshment, where other countries also drank it for its medicinal purposes.

"Despite the (world wide) boom in green tea, domestic tea consumption in Indonesia is still low at around 300 grams per capita per year, as compared with, for instance, the 2.5 kilogram per capita annually in the UK."

Tea can also be used as an ingredient in cosmetics, including lotion, shampoo and toothpaste.

The country's tea production this year is predicted to be 160,000 tons, but Halik said product quality remained a problem.

"One of the biggest problems in our tea industry is that the quality of our tea is still low due to low maintenance, especially at public plantations," Halik said, adding that 30 percent of the country's tea plantations needed rehabilitation.

Due to the poor quality, the current average price of Indonesian tea is only US$1.34 per kilogram, cheaper than tea from Srilanka, which is priced at $1.8 per kilo, and Kenya, at $2 per kilo.

Indonesia produced 167,000 tons of tea last year, 23 percent of which came from public plantations, 54 percent from state-owned plantation firm PT Perkebunan Nusantara and 23 percent from private companies.

Indonesia has 136,000 hectares of tea plantation, with the largest area in West Java, followed by Central Java and North Sumatra.

The country may experience a decline in production compared to last year due to lack of fertilizer supply, Halki said.

State fertilizer producer PT Petrokimia Gresik and Jordan Phosphate Mines Co.Ltd. have signed a joint venture to construct two chemicals factories in Gresik, East Java, to boost domestic supply.

Petrokimia president director Arifin Tasrif said Friday the factories would cost a total of US$197 million and that construction was expected to begin in June 2009 and take 30 months.

The two factories will produce 200,000 tons of phosphoric acid and 600,000 tons of sulfuric acid per year.

He said Petrokimia was the only producer in Indonesia of phosphate-based fertilizer and nitrogenous phosphorus potassium (NPK), and that the company was forced to import an average of 100,000 tons of raw materials every year to meet demand.

"We need to make sure that we have enough raw materials to fulfill the increasing demand for fertilizer," he said Friday after signing the agreement with Jordan's president director Walid Kurdi.

Data from the Association of Indonesian Fertilizer Producers shows domestic demand for fertilizer reached 7.94 million tons last year, up from 7.64 million tons in 2006, 7.22 million tons in 2005 and 7.09 million tons in 2004.

Arifin said Jordan would supply 680,000 tons of phosphate rocks to the factories annually, and that his company would refine it into fertilizer products.

Arifin said the company also aimed to increase its production capacity of NPK by 42 percent to 1.7 million tons per year by 2010 from the current 1.19 million tons.

To finance the project, both companies will contribute 30 percent of the spending, or equal to $30 million each, while the remaining 70 percent will come from loans, he said.

"We're now in talks with several local and foreign banks. In addition, we will also acquire funding from international financing institutions, including the Islamic Development Bank," he said.

Each company will hold a 50 percent ownership of the upcoming project, he said.

In addition to NPK, Petrokimia also produces SP-36 fertilizer, ZA, and urea; annually outputting one million tons, 650,000 tons and 460,000 tons of the raw materials, respectively.

The company also plans to build an urea and ammonia factory in Gresik worth Rp 5.7 trillion to fulfill domestic demand, especially in East Java.

"That factory will be the second phase of our strategy to increase our total capacity in the next five years," he said.

Arifin said the factory was expected to produce 2,000 tons of ammonia and 1,700 tons of urea per day.

Publicly listed PT Bank Danamon Indonesia, the nation's fourth largest lender, recorded a 32 percent growth in lending in the first half of the year, compared to last year. Growth may slow, however, in the second half due to inflationary pressure.

President director Sebastian Paredes said Thursday that growth in lending has pushed net profits up by 14 percent to Rp 1.16 trillion (US$126.8 million), or Rp 229.81 per share, from Rp 1.02 trillion, Rp 204.87 per share, compared to the first half of 2007.

Outstanding loans at the bank, which is owned by Temasek Holdings Pte and Deutsche Bank, stood at Rp 61.2 trillion at the end of June.

"Most of the loans went to micro, small and medium businesses, as well as corporate and commercial wholesale customers," Paredes told a press briefing.

Turning to the second semester however, Paredes forecast slower growth in lending amid higher inflationary pressure and reduced purchasing power.

High inflation, triggered by the government's move to raise domestic fuel prices in May, could encourage the central bank to further increase its benchmark interest rate, making the cost of borrowing more expensive and eventually dampening loan demand.

Bank Indonesia's key interest rate currently stands at 8.75 percent, having previously fallen from 12 percent to 8 percent in the two years up to December 2007.

"We're still optimistic our lending can grow by 22 percent overall this year," Paredes said, on par with the lending growth target set by the central bank for the whole industry for 2008

Danamon's non-performing loans (NPLs) stood at 2.3 percent in the first semester, compared to 3.1 percent for the same period in 2007.

During January to June 2008, the bank's special new program — Danamon Simpan Pinjam (combined savings and credit scheme) — grew by 29 percent to Rp 9.5 trillion, accounting for 16 percent of total loans.

In the wholesale segments, Danamon disbursed Rp 9 trillion of loans to companies and Rp 8.7 trillion for commercial purposes.

Besides lending growth, the increased net profit also reflected higher interest income, which rose 20 percent to Rp 4.06 trillion in the first half-year, compared to Rp 3.38 trillion in the previous year.

State-owned nickel producer PT Aneka Tambang (Antam) and China-based Shenzhen Zhongjin Lingnan Nonfermet Co. Ltd. on Tuesday dropped their bids to acquire Australia's mining company Herald Resources.

That has left just PT Bumi Resources with a standing offer for the company, and their bid of A$2.85 per share offered on July 2 is expected to be accepted by shareholders this week.

Tango Mining Pte Ltd, a special purpose vehicle of Antam and Shenzen, announced through a statement Tuesday it would not extend its cash offer of $2.8 per share, or equivalent to $553 million, after the bidding period closed on July 15 at 5 p.m. Perth time.

Tangohad had planned to increase its stake in Herald by 50.1 percent to 69.36 percent.

As one of the Herald's shareholders, Tango also decided to accept Bumi's takeover bid, which was offered through its subsidiary, Calipso Investment Ltd.

Calipso's will gain control of Herald's Dairi lead and zinc mine in North Sumatra.

Antam's corporate secretary Bimo Budi Satriyo said both companies had already offered their maximum bids.

"Although the acquisition was part of Antam's plan to diversify its business, after conducting several studies we realized we could not raise the offer further for the sake of our shareholders," he said.

With Calipso's bid the only one left on the table, Herald directors recommended shareholders immediately accept it.

"We believe it is in the best interest of all shareholders to accept the Calipso offer and realize the value of their investment in Herald," Herald's chairman Terrence Allen said in a statement to the Australia Stock Exchange.

"We believe that any shareholders remaining in Herald after the close of the Calipso offer would be confronted with an uncertain future in terms of the market price and liquidity, therefore Herald shareholders should accept immediately the offer without delay."

Calipso will pay Herald shareholders within 12 days of the acceptance of the offer.

Allen said that the bidding process had been competitive, with shareholders getting a far higher price for their shares than was initially offered by Calipso a year ago.

"This is a truly wonderful result for our shareholders given the risks involved in proceeding with the development of the Dairi projects and the on-going uncertainty and volatility in financial and commodity markets," he said.

Calipso currently owns 39.41 million shares in Herald, equivalent to a 19.93 percent stake.

Indonesia's cocoa production fell 7.6 percent to 480,000 tons in the first half of this year compared to in the same period last year due to failure to prevent pest attacks, an association says.

Halim Razak, chairman of Indonesia's Cocoa Producers Association (Askindo), said Monday the fungus and pest attacks should have been fairly easy to address had the farmers been trained in proper planting and pest control.

"The guidance they have received so far is still relatively small. The government still doesn't pay much attention to the importance of farmer training," Halim said.

He said at least 1,000 trainers were needed to supply knowledge to the farmers of the nation's 1 million hectares of cocoa plantations, as opposed to the less-than 100 trainers currently active.

Indonesia's cocoa yield rate currently averages 0.7 tons per hectare per year, lower than the widely-used standard of 2.5 tons per hectare per year, according to the association's data.

"In the coming years, it's likely the farmers will shift from planting cocoa to other commodities if this trend continues," he said, adding that Southeast Sulawesi was in danger of suffering pest attacks, as other plantations had been so ruined in the area.

Kompas reported earlier, citing Southeast Sulawesi's Agency of Farm and Horticulture, that thousands of hectares of cocoa plantations in Kolaka Utara regency were in danger of being destroyed by pest and fungus attacks.

According to the agency, Kolaka Utara has 45,000 hectares of cocoa plantations. The pest attacks have caused production in the regency to drop this year to just 100 kilograms per hectare per annum from between 1 and 1.5 tons per hectare per annum last year.

Sulawesi accounts for 50 percent of the country's total cocoa production.

The production decline means Indonesia is missing out on potential windfall revenues amid the high global price of the commodity, a result of high demand, Halim said.

Cocoa currently sells on the international market at Rp 26,000 (US$2.78) per kilogram.

Global demand for cocoa increased 3.5 percent last year, while supply rose 2.5 percent, he said.

Cocoa is the main raw material for chocolate, and according to Askindo, Indonesia's chocolate consumption stands at 0.6 kilograms per capita per year, compared to 16 kilograms per capita per year in Europe.

Indonesia is the world's third largest producer of cocoa beans, after the Ivory Coast and Ghana.

However, Indonesia's exports are not used in high-profile brands, including Cadbury of Britain and Hershey's of the U.S., despite those countries relying on imports.

The Trade Ministry is in talks with the country's crude palm oil (CPO) producers over a revision to the current policy for the commodity's export duty.

"There are several options being discussed, including whether it will be set to the level of the range of the increase (of the duty) from time to time or on the price indicator," Trade Minister Mari Elka Pangestu said Friday.

The export duty on CPO is set every month.

She said the government, exporters and associations would calculate the effect of the revision on CPO exports, the state budget and domestic supply before implementing it.

The government issued in February a new progressive tariff on export duties which states that CPO priced between US$1,100 and $1,200 per ton will incure a duty of 15 percent.

The duty will increase to 20 percent for prices ranging between $1,200 and $1,300 per ton, and to 30 percent for prices exceeding $1,300 per ton.

Derom Bangun, executive chairman of the Indonesian Palm Oil Association (GAPKI), said the revision would likely adopt a progressive system.

"For example, the export duty settled at a minimum CPO price of $1,000. And if the price is above that figure, let's say $1,150, the higher duty should only be applied on the extra $150," he said.

The export duty for July has been set at 20 percent, up from 15 percent a month earlier, as the average international price of the commodity in June reached $1,144 per ton.

The export duty for a coming month is largely determined by the average price of CPO in the previous month.

According to the Central Statistics Agency, total CPO exports in May reached 1.8 million tons with a total value of $1.9 billion, up from 655,000 tons in April with a value of $690.1 million.

The increase was driven by a lower export tax in May of 15 percent compared to 20 percent in April.

GAPKI estimates the country will produce 18.4 million tons of CPO this year, 4 million tons of which will be sold domestically, to be used as a raw material for cooking oil, while 300,000 tons will be used to make biodiesel and the remaining 14 million will be exported.