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Wednesday, July 30, 2008

Cement price set to rise further

The average selling price of local cement is now on par with cement prices in the Asia-Pacific which range from RM273 to RM277 per tonne.

On Monday, Lafarge Malayan Cement Bhd, which controls about 40% of the local cement market, said it would raise the prices of its cement products by RM20 per tonne from Aug 1.

Industry analysts said the latest price increase would translate into a new average selling price of about RM277 per tonne for cement in Malaysia.

They expect further hikes in cement price this year, given strong indications that other local players like YTL Cement Bhd, Tasek Cement Bhd and Cement Industries of Malaysia Bhd would soon emulate Lafarge's move to offset the recent 26% rise in electricity tariff and 63% jump in diesel price.

An analyst with a foreign brokerage told StarBiz the local cement industry was an oligopoly dominated by four large players.

“I expect cement price to continue to increase based on the high price of coal – the major source of energy for cement operators.

“Cement constitutes about 50% of raw material costs or about 20% of total construction cost. I believe every 10% increase in cement price will increase property development cost by 2%,” the analyst said.

CIMB Research said in its report yesterday that the price hike by Lafarge was not surprising, as cement companies would have to raise their selling prices following higher operational costs.

Despite the anticipated slowdown in construction, the research unit said it did not expect the price increase to dent demand in the short term.

However, CIMB Research is cautious on the long-term outlook, given delays in construction projects and a slowdown in the property sector.

It also expects a lower risk of imports due to the revised selling price that is on par with regional prices.

This will give local suppliers an edge over imports in terms of storage, quality and shelf life of the products.

Aseambankers said Lafarge's revised selling price of about RM275 per tonne in August was comparable to the price of efficient cement producers in Thailand at an estimated RM273 per tonne.

It said the quantum of Lafarge's price hike was sufficient to offset its higher cost but “the main concern is on the price of coal”.

Coal spot price based on Australia's Newcastle Index has averaged US$180 per tonne currently compared with US$70 per tonne last year.

Lafarge is set to review its cement prices by year-end. “They will possibly be higher if prices of raw materials and fuel continue to escalate,” said the research unit.

By The Star - StarBiz

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