cement industry in Malaysia

Cement Industry in Malaysia

Explore the challenges and promising growth of Malaysia's cement industry in 2024 amid global economic shifts and infrastructure projects.

Cement Industry in Malaysia: Challenges and Potential Growth in 2024

The global cement industry faces fluctuations influenced by various economic and geopolitical factors. While countries like India anticipate substantial growth in cement demand amidst inflation and geopolitical tensions, Malaysia's cement company sector holds its own amidst changing landscapes.

Global Trends and Malaysia's Position

In India, cement demand is expected to surge by 6%-8% in the coming years, highlighting resilience despite inflation and geopolitical disruptions. Meanwhile, Malaysia witnesses a promising trajectory in cement demand, fueled by infrastructure ventures across the nation.

According to reports from RHB Investment Bank Research (RHB IB), Malaysia's cement demand remains robust due to ongoing major infrastructure projects. These projects serve as pillars supporting the medium-to-long-term growth of the cement industry, amplifying market sentiment and signaling a potential surge in construction activities in Peninsular Malaysia.

Factors Driving Malaysian Cement Industry

Several factors bolster Malaysia's cement industry. Current low inventory levels, coupled with a focus on solar panels, electric vehicles, and the projected recovery in China’s manufacturing and property sectors, act as catalysts for future demand growth.

The recent upsurge in bulk cement prices, witnessing a notable 24.7% year-on-year increase in August 2023, highlights the industry's strength. This surge contrasts with the three-year average price, standing at MYR216.80/t between 2019-2021, as reported by The Edge Malaysia.

Challenges and Considerations

Despite the promising outlook, the cement industry remains susceptible to multiple challenges, such as shifts in global economic growth, volatile raw material costs, and unexpected fluctuations in cement prices. These challenges pose risks to any cement company in Malaysia, highlighting the need for strategic planning and adaptability.

  1. Rising Operational Costs

One of the primary challenges lies in the continuous surge of operational costs. Factors such as escalating raw material prices, soaring coal costs, and amplified shipping expenses have led to a sharp increase in production overheads.

The appreciation of the US dollar against the ringgit further compounds these challenges, leading to narrower profit margins for businesses operating in the cement market.

  1. Coal Price Surge and Electricity Subsidy Withdrawal

Datuk Seri Dr. Mohd Uzir Mahid of DOSM identifies the surge in coal prices as a significant contributor to the rise in cement prices. Forecasts suggest this trend will persist, with coal prices expected to remain high due to sturdy demand in ASEAN nations.

The government's decision to withdraw electricity subsidies for industrial customers exacerbates the situation, posing an additional burden on the already escalating cost of coal in the energy sector.

The potential tariff hike by 566%, anticipated to offset increased operational costs, may trigger significant cement price increases, as stated by DOSM. These impending price hikes could pose challenges for both businesses and consumers, impacting affordability and construction project costs.

  1. Supply Chain Disruptions and Regional Disparities

Supply chain disruptions and regional disparities add to the complexity. Businesses importing cement or raw materials face hurdles in establishing sustainable profit margins.

In Sarawak, for instance, a shortage of cement combined with escalating shipping costs and currency strength results in significantly higher prices compared to other parts of Malaysia.

  1. Balancing Supply and Demand

Certain regions, especially Sarawak, struggle to strike a balance between supply and demand. With significant infrastructure projects underway, including the Sarawak coastal road and petrochemical facility ventures, the demand for cement continues to surge.

This robust demand trajectory is expected to persist, challenging local cement producers to ensure an adequate supply to meet escalating requirements.

Positive Projections and Future Optimism

Amidst the challenges, RHB IB’s report indicates an optimistic view for cement demand. The rollout of significant infrastructure projects remains a backbone for mid- to long-term growth in cement demand, subsequently benefiting cement manufacturers and buyers in Malaysia.

The positive sentiment surrounding these projects leads to an upward revision in cement production volume assumptions for FY24 to FY25. This upward shift signifies growing confidence in cement and concrete demands in the foreseeable future.

For example, although the industry experienced a slowdown in cement production from April to May 2023, recent developments concerning major infrastructure projects—like the Kuala Lumpur-Singapore High-Speed Rail and Mass Rapid Transit 3 (MRT 3)—infused optimism into Malaysia's construction scene.

These initiatives boost market sentiment and signal potential upswings in construction activities.

Final Takeaways

The cement company in Malaysia stands resilient against economic fluctuations, driven by major infrastructure initiatives and diverse market demands. While challenges persist, including market volatility and potential cost escalations, the overall trajectory remains positive.

The ongoing commitment to infrastructure projects fuels optimism for sustained growth, bolstering Malaysia's cement sector outlook for 2024 and beyond.

Hanson, Cement Manufacturer in Malaysia

Hanson.my is one of the leading suppliers of aggregates, asphalt, and cement manufacturer in Malaysia, providing top-quality cement products and solutions to meet various construction needs.