Government may relax cement prices too

Tuesday May 20, 2008 The STAR
Government may relax cement prices too
By DANNY YAP and YVONNE TAN

PETALING JAYA: The cement industry may see some major price adjustments following the liberalisation of the steel industry on May 12. Most players in the cement industry have voiced their concerns via the Cement & Concrete Association of Malaysia (CCAM), saying a price adjustment was necessary to combat the rising cost of raw materials and fuel.

CCAM had proposed an automatic price mechanism (APM) for the cement industry. The Government is reviewing that. Under the proposed mechanism, cement manufacturers would have greater flexibility to pass on cost increases to customers as the mechanism takes into account production input costs.

Currently, the average price of cement in Peninsular Malaysia is about RM12 per 50kg bag, or RM217 to RM231 a tonne, depending on delivery destination. Cement prices have remained unchanged from 1995 to mid-December 2006 at RM198 per tonne. On Dec 22, 2006 the Government revised upward the price of cement by 3% to 10% due to strong lobbying by industry players. But cement manufacturers say the cost of raw materials and fuel has since risen tremendously, especially this year.

There are about four or five major cement producers locally, commanding 10% to 41% market share each. Most of them are pushing for the APM to be reviewed sooner rather than later. Lafarge Malayan Cement Bhd chief financial officer Yeoh Khoon Cheng said there was an urgent need to address the APM issue. He said the ceiling price approved by the Government in 2006 had only partially offset the 40% increase in costs incurred by the industry since 1995.

“It’s not just about protecting our margins but the price adjustment is necessary so that cement players can continue to support the growth of the local construction industry,” he said. Lafarge would face a tough time this year if the price adjustment was delayed or shelved, he said, adding: “If the APM is not addressed, our margins and bottom line would be significantly affected.”
Other cement players, who declined to be named, echoed the sentiment.

”The cement industry is having a tough time controlling costs, especially this year. We, together with others in the industry, will continue to push for a revision of the current ceiling price and for the proposed implementation of the APM,” a manufacturer said. The 2006 price increase was hardly enough to offset the increase in the costs of raw materials such as fuel and electricity, he added.

In a report dated May 15, Aseambankers Research said it remained unsure if a ceiling price hike would precede the proposed APM implementation. Since the Government announced its move to liberalise the local steel industry on May 9, cement-related stocks have started to appreciate on expectation the sector would be the next to be liberalised. Shares in Gopeng Bhd and Lafarge have gained 8% and 7% respectively since the announcement, while Tasek Corp has appreciated 3%.