Lafarge Malayan Cement confirms price hike

Lafarge Malayan Cement (LMC) has confirmed it will raise the price of cement effective today, 1 August, due to rising manufacturing and delivery costs, which is expected to bode well for the company’s margins from next year, according to analysts.

"The decision was made unilaterally and taking into consideration our increasing costs associated with manufacture and delivery of cement, which we have endeavoured to absorb over the years," its executive director Chen Theng Aik has told SunBiz yesterday.

He has denied claims that cement companies are colluding and creating an official shortage. "Our plants had carried out major shutdowns for scheduled maintenance between February and June this year, which resulted in lower production during the first half of this year. We strongly refute the allegation of creating any artificial shortage of cement," said Chen.

Cement prices are expected to be increased by MYR1/50kg bag from MYR16.75 to MYR17.75 (or MYR20/t from MYR320/t to MYR340/t).

Earlier this week the Masters Builders Association of Malaysia (MBAM) had expressed concerns that the price hikes would increase construction costs, which would then in turn lead to higher property prices as they  pass on the additional cost to home buyers. However, CMS Cement, the sole producer in Sarawak, has said it would not raise its prices.

Meanwhile, MIDF Research expects LCM margins to increase due to easing coal costs and higher selling prices. In a research note, MIDF said the new price hike was a positive surprise as it expected bulk cement prices to only increase next year and by a marginal MYR10/t.

"Based on our analysis, for every RM10/t increase in bulk cement price, LMC’s net profit forecast will increase by 15.1 per cent which translates into an increment of 7.4 sen to its earnings per share," it said.

The firm is revising upwards its financial 2013 earnings forecast by 15.1 per cent. "Nonetheless we are leaving our financial year 2012 forecast unchanged as we believe the higher price and low coal costs would be offset by its low production following major shutdowns for scheduled maintenance between February and June this year," it added.

As the demand stays resilient, MIDF reiterated its cement demand growth projection of 8.0 per cent for this year given the numerous infrastructure projects under the 10th Malaysia Plan and Economic Transformation Programme that were already on-going.