Capacity reduction, consolidation to benefit cement producers


THE cement sector’s consolidation in 2019 has resulted in a more rational and competitive landscape in Peninsular Malaysia. 

AmBank Research has maintained its ‘Overweight’ rating on the sector and noted that production restraints following the consolidation, which has solved half of the problem such as the supply issues, should at least lift the implied value of clinker capacity. 

“Post-pandemic and upon the recovery of the two key cement-consuming industries, such as property and construction, a demand-fuelled re-rating is imminent, although visibility is still lacking at this juncture,” the research house stated in a note last Friday. 

AmBank Research also projects the average net cement selling price in Peninsular Malaysia to rise marginally by 2% to RM240 per tonne in 2021 against an estimated price of RM235 per tonne in 2020. 

It believes that the conditions are conducive for further price hikes with the emergence of a price leader in the market (controlling close to 60% of total industry clinker capacity) following YTL Cement Bhd’s acquisition of Malayan Cement Bhd in 2019. 

The supply pressure is also expected to ease after Malayan Cement and Cement Industries of Malaysian Bhd put one clinker plant offline, effectively removing annual clinker capacity totalling two million tonnes, equivalent to 8% of industry clinker capacity from the market.

“With the price hikes, we expect players to return to the black in a more decisive manner in the coming quarters. 

“They already broke even over the last three quarters, after persistent losses in recent years,” the research house noted. 

AmBank Research foresees cement consumption in Peninsular Malaysia to be flat at 4.2 million tonnes in 2021. 

Moving forward, the research house said it may downgrade its recommendation to ‘Neutral’ or ‘Underweight’ if the much-anticipated recovery in both local and global economies fails to materialise. 

AmBank Research named Malayan Cement as its top pick for the sector, with a ‘Buy’ call and a fair value of RM3.34.