Malaysian fuel price hikes to impact production costs

Lafarge Malaysia Bhd, the country's leading cement producer, said an increase in fuel prices due to the government's recently-announced cut in subsidies, will have a definite impact on production costs.

 “The increase would naturally have an impact on businesses in terms of transportation cost for both production and delivery to the market,” a spokesman from the company told The Star newspaper of Malaysia.

 “We understand the need for this subsidy rationalisation exercise by the Government. We are evaluating the overall impact of the fuel price increase to our businesses before taking appropriate measures."

On Monday Malaysia announced a cut in fuel subsidies for the first time in more than two years as it tries to reduce its budget deficit. The subsidy on petrol has been cut by 20 sen (6 cents; 4 pence) a litre and on diesel by 20 to 80 sen a litre. Prime Minister Najib Razak said the cuts would result in savings of about MYR3.3bn (US$1bn) a year. The government spent 24bn ringgit on fuel subsidies last year, which contributed to a widening budget deficit.

Ratings agency Fitch cited the high budget deficit as one of the factors that led it to cuts its outlook on Malaysia's credit rating to negative from stable in late August.