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Tuesday, July 29, 2008

Lafarge raises cement retail price

PETALING JAYA: Lafarge Malayan Cement Bhd, the country’s largest cement producer, has increased the recommended retail prices for its bagged cement products by RM1 per 50kg bag or RM20 per tonne effective Aug 1. The price increase will apply until year-end. (see table)

Lafarge’s latest move was seen by industry observers as setting the benchmark for local cement players to increase their prices “anytime” soon.

President and chief executive officer Bi Yong Chungunco told StarBiz that the company had to adjust its cement selling prices to alleviate some of the major cost increases.

Bi Yong Chungunco

The cement industry continues to face more increases in its cost of production, particularly for coal and fuel since December 2006 to June 2008.

There has been no adjustment in local cement prices since 1995. In December 2006, the Government increased the cement price by 9% but during the same period, the sector was facing cost increase of over 40%.

Following the liberalisation of the local sector last month, cement prices had increased by an average 17% to “help defray some of the cost increases that the industry has been absorbing since 1995,” Bi Yong said.

Despite the price hike in cement, diesel price shot up even higher, by 63%, while electricity cost rose 26% effective early July.

Bi Yong said: “The higher electricity tariff has an immediate impact on Lafarge’s cost of producing cement and the increase in diesel price directly impacted our inbound and outbound transportation costs.

“This also indirectly affects our other costs including overheads, contract works and capital expenditure.”

Based on the latest cement price increase effective next month, Bi Yong said cement price would have increased only three times in the past 13 years which is a total of 34%.

“This is an average of about 2.6% per annum which is much lower than the annual inflation rate while other costs have risen much higher in recent years,” she added.

Meanwhile, there was consensus that cement prices next year would depend on the prices of vital raw materials that are expected to rise in tandem with the commodity prices.

The current local cement prices range from RM250 to RM280 per tonne.

A spokesman of a major local cement group told StarBiz yesterday that coal prices had increased three-fold to US$120 this year from US$40 five years ago while cement prices increased merely 10% in the 10 years between 1995 and 2006.

“We will absorb additional costs but there are limits to how much we can absorb. The rest we need to pass on to consumers,” he said.

He said international cement prices were 5% higher than local prices, excluding logistic and storage costs.

The recent hikes in fuel price and electricity tariff were also to be blamed for squeezing manufacturers’ operating margins, he added.

Meanwhile, Cement and Concrete Association of Malaysia executive director Grace Okuda said the 10% import duty imposed on non-Asean countries was a fair measure for all parties, including builders.

She also said Malaysian manufacturers had excess supply and there was no shortage of cement at this moment.

An analyst with OSK Research has a negative outlook on the construction industry for the second half of this year. He said construction activities had slowed down partly due to economic uncertainties and inflation.

The price of cement, an important component of concrete, jumped 22% after the ceiling price was lifted on June 5.

Coal, fuel and electricity make up more than 50% of the total raw material costs for cement products.

By The Star - StarBiz - (by Law Kai Chow)

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