CMS Cement outlines challenges, pressures in cement industry
by Venu Puthankattil, email@example.com. Posted on August 4, 2012, Saturday
KUCHING: CMS Cement Sdn Bhd (CMS Cement), the cement division of conglomerate Cahya Mata Sarawak Bhd (CMSB), has come forward to reveal the challenges and production cost pressures in the cement industry.
At a media briefing yesterday, CMS Cement chief executive officer Othman Abdul Rani clarified the issues pertaining to the cement business in the state, starting with the misconceptions of the overall industry that had been widely discussed nationwide recently.
“The perception of monopoly is an issue mainly because we are able to defend and maintain the market share of nine per cent nationwide.
“The other aspect of why monopoly can be seen as being driven by the government or authorities in the state is purely because of the huge financial investment in the company.
“A typical 1.5 million tonne integrated cement plant using Chinese machinery costs about RM700 million, excluding infrastructure and land.
“If we were to use European equipment, it would easily cost RM1 billion.
“Our cement terminals which house equipment to receive bulk cement, bag and redistribute cement cost us RM22 million each.
“In those terminals, we don’t even process cement. So this is the scale of investment we’re talking about.”
He added that in the cement business, volume was very vital for players to recover their investments and so with a nine per cent market share, it was a very challenging prospect for the company.
Even at the current rates, CMS Cement’s return on investment would not be less than 25 years, as it was a capital intensive industry like the steel industry, he emphasised.
“The average cement demand growth in Malaysia is six per cent per year whereas in Sarawak it has been about nine to 10 per cent over the last two years.”
With regards to supply and demand out there dictating earnings margin as well, he said that there were times whereby the manufacturers had passed on costs to the consumer.
He stated that CMS Cement exercised the policy of looking into its cost saving exercise to improve efficiency as much as possible before it considered passing on the costs to the consumers.
“West Malaysia currently has six cement manufacturers located strategically throughout the peninsula, giving them the advantage over Sarawak in terms of distribution. In addition, infrastructure facilities such as road connections in West Malaysia are in advanced stages as compared with Sarawak.
“The population spread will dictate the volume consumption of cement itself, therefore the cost per tonne of transportation or distribution is a challenge for us.
“There are instances where the market needs to be serviced by air, example from Miri to Bario highlands.
The cost of transportation is more than the cost of cement itself “Cement is a bulky material at a low cost with a short shelf life of only one month with proper storage, unlike steel which can be stored for years,” he pointed out.
With regards to production capacity, he revealed that CMS Cement could produce 1.7 million tonnes annually or 5,300 tonnes per day and the current cement capacity could reach 5,500 tonnes daily because of fine tuning in the plant’s production.
The daily average demand was 5,300 tonnes per day so therefore the supply and demand relationship right now was very tight, he explained.
Power and coal prices for the industry accounted for 45 per cent of the cost of production.
Any increases in the cost of raw materials or power would thus have a big impact on the industry.
With respect to importing bulk cement to meet demand, the company planned to import 10,000 to 20,000 tonnes per month (mainly from Vietnam and Thailand) depending on the pattern of demand.
This would be conditional upon the demand volume as it depended on peak stages of projects here and as such there was no such thing as a steady demand, he said.
“Currently, the average selling price in Malaysia ranges from RM320 to RM340 per metric tonne, making it among the lowest in the region after Thailand.
“Cement is still an essential material required for the development of infrastructure such as buildings, factories, bridges, roads and so forth.
“We happen to be the sole manufacturer in the state and as such are committed to the state and we are going forward to work together,” he highlighted.