01 August 2012

Lafarge, Malaysia's largest cement producer by capacity confirmed raising cement prices

The usually staid cement industry got a bit hot under the collar recently when rumours surfaced of a hike in prices that will, in fact, take effect today.

The Master Builders Association Malaysia (MBAM) kicked up a fuss last week after it was notified by one its members, which happens to be a large listed developer, that one of the “major” local cement manufacturers had all but decided to raise the list price of cement in the Klang Valley.

A few days earlier, the Building Materials Distributors Association of Malaysia came out to say that the price for a 50kg bag of cement was set to climb RM1 and the price per tonne RM20, according to market talk.

This means a 6% increase from the current prices of RM16.75 per 50kg and RM320 per tonne. The last time prices were higher was in March 2011, also by 6%.

Naturally, those who would be affected were up in arms, alleging that collusion and even an artificial shortage had taken place among the six producers, namely YTL Cement Bhd, Tasek Corp Bhd, Cement Industries of Malaysia Bhd, Lafarge Malayan Cement Bhd, CMS Cement Sdn Bhd and Holcim (M) Sdn Bhd.

Then yesterday, Lafarge let the cat out of the bag when the country's largest cement producer by capacity confirmed it was raising prices.

“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, was quoted as saying by a local daily.

He also refuted claims of collusion, insisting that a shutdown of its facilities for maintenance earlier this year had led to lower production.

When contacted, MBAM president Matthew Tee said the organisation, which represents the local construction industry, had made its stand and was sticking to it.

In a statement last week, MBAM appealed to the Domestic Trade Ministry to look into the matter, saying the increase in price would “definitely” result in a spike in the price of all concrete and cement-based products, and inevitably the cost of construction.

“Contractors will be impacted as they have signed fixed-price contracts with project developers. Ultimately, the price increase will be passed on to end-purchasers and house buyers.

“We see no reason for the said increase as production costs have not gone up but in fact fuel and energy costs have come down this year. We would like to draw the attention of the Malaysia Competition Commission to investigate whether the major cement manufacturer is making use of its dominant position to lead in the said price increase and thus control the market price.”

Tee also told StarBiz by phone that the association did not oppose a price rise per se, but rather the lack of “due and proper notice.”

“As long as there is proper notice, and based on fair market conditions, we are OK with higher prices,” he said, noting that the two sides had in the past engaged each other on this very issue.

He also questioned the view that Lafarge's decision was motivated by supply and demand, stressing that price hikes should not be done erratically. “What if it goes up again in September, or later?”

Another industry player pointed out that once Lafarge began charging its new rates, the rest were sure to follow suit, if past experience was anything to go by.

So far, only Sarawak-based CMS Cement has said publicly it will keep prices as they are. The other firms did not immediately respond to queries from StarBiz.

Meanwhile, the Cement and Concrete Association of Malaysia (CNAC) has steered clear of the debacle, saying it has no role whatsoever in the setting of prices by its members.

“I have made it quite clear. Pricing is not a matter for CNAC to collate as that would be against competition laws. Each company has the right to raise prices on its own volition,” executive director Grace Okuda explained.

On the repercussions of this for property developers, Real Estate and Housing Developers Association president Datuk Seri Michael Yam said any increase in building material costs would, due to the compounding effect, lead to more expensive homes and offices.

“We are concerned because there is only so much the customer can bear,” he said, but added he was cognisant cement companies were entitled to a return on their business.

Be that as it may, analysts are of the opinion that the price rise was driven by market forces as massive infrastructure projects, including the Klang Valley My Rapid Transit and extension of the Light Rail Transit, get under way, giving a fillip to demand.

One industry watcher rubbished claims that more costly cement would cause a plunge in consumption or some such adverse reaction.

“The market will adjust itself. Supply and demand will take precedence at the end of the day,” he said.

Source: www.thestar.com.my


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