Price war costs cement firms

Malaysian cement companies are expected to suffer losses in the first half of this year because an ongoing price war is affecting margins, sectorial analysts say. “The current price war is worse than the previous one in 1999 in term of both intensity and duration,” a local analyst said. He said in 1999, the price war lasted only about three months while the current price war has lasted for more than six months.

“Cement prices after rebates are also at a record low of less than RM100 a tonne. The ceiling price for cement is set at RM198 per tonne by the Ministry of Domestic Trade and Consumer Affairs. Apparently, YTL Cement Bhd’s aggressive efforts to increase its market share after its acquisition of Perak Hanjoong Simen Sdn Bhd is the main reason for the price war.  “This has been compounded by a weak macro environment with the overall contracting demand for cement,” according to local sources.

The price war is expected to to continue unless YTL Cement revises its strategy of expanding its market share, adding that the company is already producing at more than its share of capacity. Meanwhile, analysts will likely slash the profit forecast for Lafarge Malayan Cement Bhd, Malaysia’s largest cement producer, because of the price war. “Our 2005 net profit forecast of RM99 million for Lafarge is a little too optimistic... we will slash estimates by 100 per cent or more after its first quarter results are released,” one analyst said.