Malaysia: slight rise in demand for cement this year

Malaysia: slight rise in demand for cement this year
30 September 2008

Demand has been stagnant since 2003, says the Cement & Concrete Association of Malaysia association (C&CA).

The C&CA expects domestic cement demand to grow marginally by 3-5 per cent to about 16.33Mt this year versus 15.86Mt in 2007 due to a lacklustre construction industry.

Chairman Tan Sri A. Razak Ramli said cement demand had remained stagnant at 15 to 16Mta since 2003.

“Despite an encouraging growth in the first half of the year, we will only see a relatively small growth in demand this year due to the slowdown in the construction industry. We hope things will be better next year. If the economy picks up next year then construction should also,” he told StarBiz.

In addition to a lack of demand, the local cement industry has been a much misunderstood industry.

Various accusations have been hurled at industry players including increasing cement prices after liberalisation and creating artificial shortages through orchestrated plant shutdowns.

There have also been calls by various parties for the Government to remove all import duties for cement, impose an export or windfall tax and/or impose an export ban on clinker and cement to ensure sufficient domestic supply.

To Razak the allegations are baseless.

“There can never be a shortage of cement in Malaysia as the cement installed capacity is very high at 28.3Mt,” he said.

In 2007, cement production inclusive of export was only 19.48Mt of which 15.86Mt were consumed locally. Razak said the forecast production this year would be slightly higher at 19.62 million tonnes as domestic consumption was expected to increase to 16.33 million tonnes. Cement export is expected to increase to 14.7 per cent of production this year, up from 14 per cent last year.

“The Government should also not impose an export ban on cement because manufacturers can easily meet domestic demand and export the excess,” Razak said.

Moreover, the Government is in full control of clinker and cement exportas every tonne can only be exported with an export license from the International Trade and Industry Ministry supported by a letter of no objection from the association.

Razak said cement manufacturers were also not intentionally creating shortages by simultaneously shutting down plants for maintenance.

He said complaints of tight cement supply, especially in Peninsula Malaysia, was actually due to the fact that “bagged cement was not moving fast enough.”

“With the increase in fuel price, many transporters are reluctant to carry bagged cement as cargo as they are low value, bulky items. Otherwise they will try to overload the lorries. There is also a lack of lorries, drivers and licences,” he added.

Road Transport Department operations on overloaded tankers and lorries carrying cement and its related raw materials also added to the industry’s transport woes.

Razak pointed out that although the Works Ministry had gazetted an additional 20 per cent loading from the present permissible weight for lorries/tankers on all federal roads in Peninsula Malaysia, federal roads in east Malaysia and state roads nationwide were not covered.

To help ease supply issues, the C&CA is in the midst of setting up a public hotline centre to assist those in Peninsula Malaysia who have trouble with cement supply.

“Through the centre, Class F contractors will have a direct avenue to obtain cement. We will also be able to capture and build a database on public complaints on cement supply,” Razak said.

On cement price increases, Razak said the industry did not raise prices indiscriminately and exorbitantly despite having absorbed cost increases of more than 60 per cent from 1995 to 2007.

There were only two price increases between 1995 and 2006 when cement prices were under the Price Control Act - 10 per cent in August 1995 and an average of nine per cent in December 2006.

Following cement price liberalisation on June 5, prices were only increased twice - 15-20 per cent country-wide in the same month as well as an average eight per cent in Peninsula Malaysia in August due to an unprecedented 63 per cnet diesel price hike and a 26 per cent rise in electricity tariff. This price will hold until December.

Despite the price liberalisation, the return on investment (ROI) for the cement industry has only increased to 6 to 10 per cent from the previous three per cent.

“This is still insufficient to encourage reinvestment by industry players,” Razak said, adding that the cost of a 1.2Mt integrated plant was about RM1bn currently.

“This is why there has been no expansion programme or new plants coming on-line since 1997 although manufacturing licenses for the production of more than 14Mt of cement have been issued by the Government.

“There has been some re-investments and upgrades but returns and demand are too low to encourage new expansion.”

Published under Cement News