Lafarge prepared to cut cement prices

Lafarge prepared to cut cement prices
Published: 11 April 2005

Lafarge Malayan Cement Bhd, says it is prepared to cut the selling price of its material to defend its turf as an industry price war escalates.  Cement prices have recently tumbled, hit by slow demand from the construction industry, and this has forced producers to react.  Lafarge Malayan Cement group president and chief executive officer Alain Crouy told Business Times that although the company prefers to compete on good customer service, it "will match lowered prices whenever necessary to defend (our) market position.

"Some competitors may try to compensate the decrease of their volume by trying to take additional market share," he added.   Lafarge controls 44 per cent of the national cement market.  National Ready-Mixed Concrete Association of Malaysia said last week that cement prices have plunged to a low of RM128 per tonne, RM70 below the ceiling price set by the Ministry of Domestic Trade and Consumer Affairs.  

Crouy said the decline is a result of strong competition for volume during the current slowdown in the market. Between 2003 and 2004, there had been a 5 per cent drop in the demand of cement and this has continued into the first few months of 2005. Crouy said he does not know how long the downtrend will continue, but hopes that cement prices will go back soon to a "reasonable level". "We’re monitoring the level of current cement prices very closely," Crouy said, explaining that a reasonable price level for cement is one that allows manufacturers a decent return on their investments.  

He said production costs of cement have escalated in the last two years because of price increases in coal and diesel while the ceiling price of RM198 per tonne set by the Government has not changed since 1995.  On prospects of Lafarge working together with other cement companies to stem price war, Crouy said he hopes all cement companies will realise soon that competing on prices to gain market share is not a sustainable strategy.  

According to Cement & Concrete Association Malaysia, the market is currently controlled by four large cement-producing groups, namely Lafarge Malayan Cement (with a 44 per cent market share), YTL Cement Bhd (24 per cent), Cement Industries of Malaysia Bhd (16 per cent) and Tasek Corp Bhd (13 per cent). The remaining 3 per cent is made up of the other small players. The market positioning is based on the companies’ clinker-making capacity. Clinker is the raw material used to make cement.   Out of the 15Mt of cement produced last year, 85 per cent were for the domestic market while the remaining 15 per cent were exported.

"Cement prices are still going down because of competition," Terence Wong of GK Goh Research says. "YTL Cement’s purchase of Perak Hanjoong shows that it is an aggressive competitor," the research head noted, adding that YTL Cement’s participation in the present price war shows that it is keen on gaining more market share.