The easing of cement import curbs is not expected to significantly impact domestic producers by making them aggressive exporters, industry observers say.
“I believe only excess capacity will go to the foreign markets; the local market will still be their main market,” said an industry observer, adding that local cement makers would also need to consider foreign competition if they aimed to focus on the export market.
Just as imports are not expected to flood the local market following the government’s decision to scrap import curbs on cement, the same applies to exports.
For instance, the Thai and Indonesian cement industries are already experiencing excess capacities, exporting to countries like India and the Middle East. It seems more attractive for Malaysian players to focus on the local market considering the head-on competition coupled with transaction costs and need for cement storage.
However, fears over the more subdued local cement demand, given the delays and cancellation of certain Ninth Malaysian Plan (9MP) infrastructure projects as well as slower property launches would serve as the main catalyst for local players to boost exports.
According to research houses, the local cement price is also not expected to increase significantly following the government’s impending move to lift cement as a price controlled item and to scrap import curbs.
Theoretically, the local cement price was expected be capped at the current international price of US$70/t (RM224) and shipping cost at an estimated US$10/t (RM32), according to RHB Research.
With the current ceiling price, locally produced cement is tagged at RM219/t or at about 3% discount to the price in the open market in the region, which is about US$70/t.
It is apparent that local cement makers will raise the selling price to pass down the higher production cost, especially the cost of thermal coal that has more than doubled over the past 12 months.
“While some price increase by the domestic players is possible, we believe the quantum of increase is limited. Hence, in the worst-case scenario, margins would contract, similar to the situation in the region,” said Aseambankers Research.
According to media reports, the price of clinker in Thailand and the Philippines had increased by 72% to US$38 per tonne fob (freight on board) on average in April from US$30 per tonne in January.
Consequently, cement price is estimated at US$60 per tonne cost, insurance and freight (cif) from Thailand, and US$70 per tonne cif from the Philippines, close to the domestic ceiling price before taking into account the additional costs of handling and transportation in Malaysia.
The government recently said it would scrap import curbs on cement and allow makers to set their own prices after removing similar controls on steel. However, research houses are less enthusiastic on the cement than the steel sector, with most of them adopting a neutral stance on the former.