Lafarge Unfazed by Capacity Rise


27 February 2013


By Fintan Ng


PETALING JAYA: Lafarge Malayan Cement Bhd is confident that a combination of environmentally sustainable products, continued growth in the construction sector and exports will help the company maintain its position as the country’s largest cement producer in the domestic market.


The company has a 40% share of the local market, in which total industry production averages about 20 million tonnes annually.


Lafarge president and chief executive officer Bradley Mulroney told StarBiz at the sidelines of an analysts’ briefing that the rise in production capacity by other players would be “logical”, given their presence in a growth market.


According to analysts, competition in terms of price pressures would rise with an expected 22% jump in production capacity, but increased cement demand largely due to an acceleration of infrastructure projects post-general election should help blunt some of the price pressures.


CIMB Investment Bank Bhd analyst Sharizan Rosely said in an earlier report that the expected rise in industry capacity by year-end could further intensify competition. “We expect the industry-wide price instability to last in the medium term,” he opined.


Mulroney noted that local cement producers cannot “stand still” in terms of capacity or they would not be able to cope and lose their market share. However, he said price instability was bad for the market because it impacts the industry’s ability to service clients efficiently.


“We expect pricing to return to a more stable environment early this year,” Mulroney said. Major industry players have been giving rebates and bulk discounts due to increased competition following the entry of a new player, Hume Cement Sdn Bhd, with its 1.5-million tonne capacity.


Besides Lafarge, the main cement players include YTL Cement Bhd, Tasek Corp Bhd, Cement Industries of Malaysia Bhd (CIMA), CMS Cement Sdn Bhd and Holcim (M) Sdn Bhd. YTL Cement and CIMA have planned capacity expansions of around 1.5 million tonnes each.


“We’re in a slightly different position as because of our ability to balance between domestic and export markets, we’ve more room and more flexibility than the rest in terms of how we want to manage capacity,” Mulroney said, adding that the local market would continue to be prioritised due to the wider margins.


The company’s domestic-to-exports markets ratio stands at 70:30, with exports mainly to neighbouring Asean countries as well as southern Asia.


Mulroney said the key issue would be to ensure that the major players would be able to satisfy domestic demand. “The only way that demand can be met is when the main industry players maintain capacity to the level that is required,” he said.


Mulroney added that the company was reviewing how much capacity it would need. “We’re currently reviewing how much more additional capacity would be needed to ensure our proper participation in the market,” he said.