Malaysia: slow cement growth in 2016

Malaysia: slow cement growth in 2016
Published: 03 June 2016


Malaysia is proving to be a challenging market for Lafarge where it is reported to have seen profits fall by 72 per cent in 1Q16 to US$5m. While this has resulted partly from production issues, it represents a significant fall in sales from a year earlier when profits were up at US$17.9m for the 1Q15.

Indications are that Lafarge is not the only producer finding the Malaysian market somewhat challenging at present. Depreciation of the ringitt also saw Cahya Meta Sarawak Bhd (CMS) raise its cement prices at the end of last year. Its 1Q16 revenues fell by 29 per cent YoY to RM346.91m (US$83.4m) from RM490.99m (US$118m) in 1Q15. CMS’s net profit was also down to RM1.05m (US$252,462) a drop of 98 per cent YoY from the RM57.42m (US$13.8m) recorded in 1Q15. CMS is currently in the process of adding new grinding capacity to its Mambong plant.

However, for Lafarge Malaysia there is also some restructuring to be carried out following the acquisition of Holcim (M) Sdn Bhd for US$75.5m in November 2015. The one-off integration costs have impacted on the 1Q16 financials for Lafarge as depreciation charges and higher finance costs from the borrowing to fund the acquisition contributed to the lower profits. Lafarge Malaysia also bought 70 per cent in Geocycle Malaysia Sdn Bhd in the previous quarter.

The acquisition of Holcim (M) Sdn Bhd has increased Lafarge Malaysia’s cement capacity from 13Mta to 14.14Mta with the addition of the Pasir Gudang grinding plant and has left the group with a significant capacity lead in the domestic market, according to MIDR Research. Ongoing cement capacity expansion for the company at its Kantan (Perak) and Rawang (Selangor) facilities will further boost the group’s grinding capacity to 15.3Mta.

Currently, there is a lack of both big new projects and of stringent bank financing to drive demand in Malaysia. Severe weather conditions were also cited for the poor performance of CMS by the group’s managing director, Datuk Richard Curtis. The government unveiled its 11th Malaysian Plan in the 2Q15 with mega projects such as the Mass Rapid Transit Line 2 (RMB28bn), Light Rail Transit Line 3 (RMB10bn) and the Sungai Besi Ulu-Kelang elevated expressway, but its benefits will play out in the long term. Private construction projects concentrate on the development of the Klang Valley with the Bukit Bintang City Centre, Kuala Lumpur 118 tower, Tun Razak Exchange and Bandar Malaysia.

According to Tasek Corp Bhd, the country’s fourth-largest cement producer, cement demand increased by 8.43 per cent to 22.83Mt in 2014 from 2013, and saw moderate growth of less than five per cent in for 2015 to 25.5Mt. In 2016 cement demand is forecast to drop to 23.5Mt, according to MIDF Research and The Edge Financial Daily.

Affin Hwang Capital currently estimates that Malaysia’s peninsular has a production capacity of 31.6Mta with an industry utilisation rate of 70 per cent (see Table 1).

Table 1: Malaysian peninsular clinker/cement capacity and market share, 2016

Cement producer

Clinker capacity (Mta)

Cement capacity (Mta)

Market share (%)

Lafarge

8.2

13.0

41.0

YTL

4.2

6.1

19.3

CIMA

4.6

7.2

22.9

Tasek

2.3

2.3

7.3

Holcim

1.2

3.8

Hume

1.5

1.8

5.7

Total

19.3

31.6

100

Source: Affin Hwang Capital

Please note: CMS is not located on the mainland but on the island of Sarawak where it is the sole cement producer with 1.75Mta of cement capacity.