Malaysia: Cement pricing highs
Escalating raw material and coal prices, higher shipping costs and the US dollar appreciation against the ringgit are all contributing to further price rises in Malaysia's cement market, which has seen consumption increase with more expansion in demand expected going forward as companies face tighter profit margins.
Key factors in price rises
Datuk Seri Dr Mohd Uzir Mahid of DOSM stresses that coal prices are one of the main reasons for cement price increases. "Coal prices will continue to rise in 2023 with demand expected to remain flat at that level through 2025 as declines in mature markets are offset by continued robust demand in emerging ASEAN economies," said Mr Uzir Mahid.
Electricity prices are also expected to cause further challenges to the cement sector as the government intends to remove the electricity subsidies from medium-voltage and high-voltage industrial users, to mitigate the high coal cost in the energy sector. As the tariff is currently MYR3/kWh and is set to rise by between MYR20-27.7/kWh, this would be a rise of 566 per cent. DOSM reports that such action could see cement price increases of MYR200/t (US$45.7/t) to offset higher operating costs.
For companies importing cement or raw materials it is also becoming increasingly difficult to achieve healthy profit margins. For example, rising shipping costs and the US dollar appreciation are leading to higher input and product sale prices for Cement Industries (Sabah) Sdn Bhd (CIS). Similarly, on Sarawak, coupled with the cement shortage, this leads to significantly higher cement prices when compared with other parts of Malaysia. "To date, the average unit price of cement in Sarawak is 15 per cent higher compared with Peninsular Malaysia and also four per cent higher than in Sabah," said a statement issued by the Sarawak Economic Development Corp (SEDC) and Bintulu Development Authority (BDA), who are reportedly looking to set up a joint-venture (JV) company to import 0.5-1Mt cement annually from Thailand.
Some regions face a particularly challenging time in terms of pricing and costs as they try to reconcile supply issues with increasing demand. Cement demand in Sarawak has been robust and is forecast to surge with the construction of several major infrastructure projects, petrochemical plant projects and road construction. The Sarawak coastal road construction and second trunk road and Sarawak-Sabh link road are all expected to raise cement demand. Sarawak-based cement producer, Cahya Mata Sarawak (CMS), a wholly-owned subsidiary of Cahya Mata Cement Sdn Bhd, last raised its cement prices by an average of 10 per cent on 17 February 2022. Before the end of 2022, the company also had to apologise to its customers for a cement shortage, in part created by a maintenance shutdown at its Mambong grinding plant.
Protecting profit margins
To meet some way in protecting producer profit margins, the Malaysian government revised the list price of bagged cement from MYR19.25/ 50kg bag to a recommended retail price of MYR22.50/ 50kg bag across all regions of Malaysia on 18 November 2022. This typically increased cement prices by 17 per cent, said the Sun Daily. Malaysia's statistics department, DOSM, reported a 1.5 per cent MoM increase in the unit price index for cement in December 2022, with a further rise expected in January 2023.
Opposition to price hikes
Despite the situation that domestic cement producers find themselves in, they are not going unchallenged in raising their prices. As cement is a "scheduled controlled good" regulated by the government, four builders' associations appealed in December 2022 to the Malaysian government for help after the 15-17 per cent cement and concrete price hike. This followed a price rise in March 2022 of 15 per cent by several cement producers.
The industry will now see if the government does indeed act to restrict cement price increases and therefore cap profitability. Meanwhile, building material companies have argued that cement price increases are likely to have a domino effect on other construction materials, such as gutters, roofs and ready-mixed concrete.
