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Saturday, January 10, 2009

Analysts mixed on cement price outlook this year

Although major construction material costs have come down recently, analysts are mixed on the outlook for the price of cement this year.

An analyst said that theoretically, the cement price in 2009 should increase given that the prices of coal and electricity, which are vital for cement production, would be higher than last year.

“But we expect cement price to remain the same this year, as the global economic uncertainty and external factors were pressuring the local manufacturers from increasing the price,” she tells StarBizWeek.

However, another analyst from a multinational firm predicted otherwise. He opines that cement price will fall because its raw material costs had come down.

He says the price has not declined like other products because the cement industry is more localised and, therefore, domestic manufacturers have more control.

After the cement price liberalisation on June 5 last year, he says import volumes have remained small due to the high logistic costs.

Currently, he adds, the local price has risen about 27% to RM280 per tonne from RM220 early last year.

Cement Industries of Malaysia Bhd chief financial officer Rozahan Osman says demand for cement in the region will grow 1% to 2% this year if major infrastructure projects progress as planned and residential projects recover as predicted.

“Cement demand contracted in the second half of 2008, while the full year growth rate is expected to be around 3% compared with 8% growth in the first half. We expect demand to recover in the second half of 2009.

“Cement price could only be lowered when prices for major production input, such as coal and production consumable prices, are lower,” he says.

Meanwhile, Cement and Concrete Association of Malaysia executive director Grace Okuda says market forces of supply and demand will determine the price of cement.

Grace Okuda

She says unless the government speed up the implementation of the stimulus packages, especially on infrastructure projects, cement demand will continue to slow down.

“However, we expect demand to recover latest by the fourth quarter. Currently, there is no cut in production yet and as there is no retrenchment in the cement industry. Manufacturers are looking for new markets to mitigate the domestic slowdown,” she says, adding that presently, only a small percentage of the domestic production is for export.

According to Okuda, cement price had not risen from 1995 to late 2006. In December 2006, it rose only 10% although production costs had risen by 31%.

Since then, its price had gone up twice - 15% to 20% in June and about 8% in August last year. The increases were due to an unprecedented 63% hike in diesel price and 26% rise in electricity tariffs.

She says the association has informed the Government of the industry’s concern and hopes it will reduce electricity tariffs.

By The Star (by K.C.Law)

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