Producers: cement prices unsustainable in Peninsular Malaysia

Producers: cement prices unsustainable in Peninsular Malaysia
17 June 2019

Cement prices in Peninsular Malaysia, which have been declining since 2016, have a reached an unsustainable level as production costs have increased, according to the country’s cement producers.

While the Cement and Concrete Association of Malaysia said it cannot comment as cement prices are set by individual manufacturers independently, it highlighted the capital-intensive nature of the cement industry and the need to have a reasonable return on its investments to meet the expectations of all its stakeholders.

Higher electricity tariffs, following the withdrawal of the special industrial tariff (SIT) and the implementation of the imbalance cost past through (ICPT) mechanism have contributed to higher production costs in the past few years, according to The Edge Markets. in addition, the increase in paper pulp prices has sent packing material prices upward. Imported fuel and engineering spares have added to the total cost burden of cement producers.

"While the industry has been absorbing these cost increases, cement prices in Peninsular Malaysia have been on a downward trend since 2016 and have reached the level that is not sustainable. As a result of the significant margin erosion brought about by the declining cement prices and cost increases, the cement manufacturers have incurred significant losses and negative cash flows for the past many quarters.

"Collectively, the cement industry provides hundreds of thousands of jobs directly and indirectly. These jobs will be put at risk if the industry continues to operate at a loss," the association added.

It is expected that cement prices will rise between 40-50 per cent from July. The Finance Ministry and the Domestic Trade and Consumer Affairs Ministry (KPDNHEP) is set to meet over the latest price rises. Real Estate and Housing Developers Association Malaysia (Rehda), Penang Master Builders & Building Materials Dealers Association (PMBBMDA) and Federation of Malaysian Manufacturers (FMM) met Finance Minister Lim Guan Eng to discuss the matter.

Finance Minister Lim Guan Eng warned of the impact on the construction of houses, infrastructure and factories. “The cement industry is now dominated by a company which owns 85 per cent of the supply. This group questions if this is the impact of the monopoly involving the company.

"Hence this matter will be brought to the ministry and I will meet with the minister Datuk Seri Saifudin Nasution Ismail to discuss the matter, maybe next week," according to the finance minister. He added that there was no reason to hike the price of cement as the ringgit had begun to strengthen, while materials used to produce cement were sourced locally.

Published under Cement News