MALASYA: Cement players hard hit by weaker ringgit

The weakening ringgit hit the cement industry hard, with costs increasing by up to 20%, as the biggest raw material imports for manufacturing cement are coal and gypsum, which are paid in US dollars, according to members of the Cement & Concrete Association of Malaysia (C&CA).

“Definitely you can see all the costs going up. The big components are coal and gypsum, which are imported. So this is a big impact on our industry,” C&CA chairman Datuk Yeoh Soo Keng told a press conference after the association’s 50th anniversary celebrations and launch of its coffee table book here yesterday.

“With the impact of foreign currency, clinker being imported would increase in costs by 20% and key to this increase is coal, which is an important part of the cement process. With the weaker ringgit, we have to buy coal in US dollars so that’s a heavy cost increase,” said former Lafarge Malaysia Bhd CEO Bradley Mulroney.

Hume Industries Bhd group managing director Quah Thain Khan said the percentage of increase in costs may differ from companies as different cement manufacturers use different proportion of coals and gypsum, while some even manage to buy cheaper coal.

“When the ringgit depreciated from RM3.20 to over RM4, that’s already a 30% increase and our costs have already increased by that amount, for raw materials alone.”

Quah opined that the impact on raw material is at most a 15% increase as at the same time, commodity prices have also come down.

“It is an impact but our selling prices are okay to sustain. Most of the cement companies are still quite profitable. It won’t put cement companies in the red,” he said.

Quah explained that the cement industry is luckier than the steel industry as it does not need to fight with cheap imports. The steel industry, for instance, has seen selling price fall, with many steel companies losing money.

“So we have to manage the impact of the weakening ringgit, by negotiating for cheaper coal, managing our plant more efficiently.”

He said the selling price of coal has been stable, and does not foresee prices dropping because the demand will strengthen.

“We’re confident (of the demand) because Hume is now building a second line. Although there is over capacity (of cement in the industry), there is still sufficient demand to make cement companies run well,” said Quah.

Meanwhile, International Trade and Industry Minister Datuk Seri Mustapa Mohamed said the construction industry in Malaysia has been growing between 5% and 6% in the last few years, which is slightly above average compared with other sectors.

“We see this sector continuing its rate of growth. Although high end (property) is softening, the low end, affordable homes that the government is providing a push will spur the growth of construction, as well as with major projects like Pengerang and MRT. So construction will continue to be an important growth for the economy,” he said.

Earlier in his speech, Mustapa said more integrated cement plants should be set up in Malaysia to produce our own clinker and reduce imports.

Malaysia is still a net importer of cement clinker. From January to August, Malaysia imported RM348.6 million of clinker.

But between January and August, RM28.1 million of cement was exported to Australia (79.5%), Sri Lanka (9.5%), Indonesia (7.3%) and India (3.3%).

Malaysia’s cement and concrete industry contributes about 4% to the country’s gross domestic product. It possesses 38.83 million tonnes of cement-grinding capacity and 23.66 million tonnes for clinker.