Cement industry awaits roll-out of 9MP, Malaysia

Cement industry awaits roll-out of 9MP, Malaysia
Published: 26 October 2006

Since the Government unveiled the RM220bn Ninth Malaysia Plan (9MP) some seven months ago, the construction industry has waited anxiously for projects to be rolled out.

With only two mega projects - the RM2.8bil second Penang bridge and the RM7bil Klang Valley light rail transit new line and extension - put up for tender so far, industry players like cement and steel companies are hopeful that the new projects will benefit them.

The Cement & Concrete Association of Malaysia executive director Grace Okuda told StarBiz: “So far, while anticipation for 9MP projects has been high among cement manufacturers, there has been a slow follow-through for any project announcements. There has been no acceleration of production to reflect growth in domestic demand, especially when it relates to 9MP.”

Okuda also said many players were hoping that the Government would hasten the announcement of projects, but believed it would only happen in mid-2007 or later.

Players are hoping that the Government would hasten the announcement of projects
UOB Kay Hian Group said in a research note the development expenditure for 9MP was 29.4% higher than that of the Eighth Malaysia Plan. 9MP also gave focus to large infrastructure projects once more.

Although only two projects had been put up for tender, it was a positive start. 

“This is a huge relief as most players have seen their order books dwindle or filled by lower-margin overseas contracts over the last two years,” UOB Kay Hian said.

There is also much optimism on the proposed South Johor Economic Region, for which the Government has allocated RM12.2bil, although the masterplan for this project is only expected to be announced on Nov 4.

Despite the bearish conditions in the construction industry, the cement and construction sector has outperformed the Kuala Lumpur Composite Index so far this year by an average 59.3%, bolstered by positive turnarounds in earnings in companies such as UEM World Bhd, UEM Builders Bhd and Cement Industries of Malaysia Bhd (CIMA). 

CIMA and Lafarge Malayan Cement Bhd, after suffering an earnings squeeze during the cement price war earlier this year, have reported a rebound in earnings attributed to better sales volume and higher cement prices. 

UOB Kay Hian said the margins for the industry were expected to rise 10.3% this year, compared with 8.5% in 2005. “The higher cement prices and an increase in higher-margin domestic sales are expected to more than offset cost increases in electricity and rail transport,” it said.

The cement industry is also hoping for an increase in the ceiling price, which has been stagnant for about 10 years now. Cement players have been asking for an increase for over a year. If their request is eventually fulfilled, the research note said a 10% increase in cement ceiling prices would boost the industry’s earnings by 50.2% annually.