Malaysia has one of the most developed infrastructures in south-east Asia, but while the west coast of the country is highly developed and supports the bulk of the country's 27.5m inhabitants, there is still significant ongoing development and potential for further development in rural areas in the east of Peninsular Malaysia and in Malaysian Borneo.
Introduction
Malaysia has often been described as being two countries in one, with environments ranging from high-rise Kuala Lumpur in the west and wild forests in the east.
This description certainly rings true for the domestic cement indutry. As one would expect, the high level of development in Peninsular Malaysia is supported by a significant cement industry. Indeed nine of the 10 cement plants in Malaysia are on the pensinsular side, with only one integrated cement plant, the 1Mt/yr CMS Cement Sdn Bhd (CMS) plant at
Kuching in Sarawak, in Malaysian Borneo. This means that this region, which has around 7.5 million inhabitants, roughly 27% of the population, has just 4.3% of the country's total cement production capacity.
This discrepancy highlights the relative development of the two regions and the high potential for development in Malaysian Borneo, which has not seen additional capacity addition since 1998 when CMS opened its 0.75Mt/yr Bintulu grinding plant in the north-eastern part of Sarawak.
Peninsular Malaysia has a mixture of plants run by local producers and those run by multinationals, two run by Lafarge Malayan Cement Bhd and an Aalborg white cement plant.
Cement demand
Domestic cement demand in Malaysia has fluctuated in recent years. In 2008, demand rose by 7% compared to 2007, but the onset of the global economic recession negated this increase with a 6.7% drop in domestic demand in 2009 compared to 2008. In 2010, the trend was better, with the first half of 2010 seeing demand flat compared to 2009. This meant cement demand of around 7Mt of cement over the six months. Cement capacity-utilisation is currently estimated to be running at around 85%.
Companies are currently eyeing new infrastructure developments in Peninsular Malaysia, which include the building of the second Penang bridge, the double-track railway project and the construction of a new low-cost carrier terminal at Kuala Lumpur International Airport.
Speaking in August 2010, Bi Yong Chungunco of Lafarge Cement Malaysia, said that the company expected demand to improve in the second half of 2010. "We hope to see single-digit growth in cement demand in the second half of 2010. If the growth is not strong in the second half due to project delays, then I think that the spillover should boost cement demand in 2011."
Financial results
Due to its economic expansion in the late 20th Century, Malaysia is considered to be a 'newly industrialised economy.' Positioned in south-east Asia, a region that has weathered the recent global economic downturn better than others, its economy went into recession in 2010, but has since returned to growth. This has destabilised the cement industry to a small extent, which has complained of slow domestic demand growth in recent years.
In July 2010 Tasek Corp reported that its net profit for the three months ending 30 June 2010 (2Q2010) rose by 9.6% to US$6.04m from US$5.51m a year earlier, mainly due to improved margins from lower production costs coupled with a local cement price revision. Revenue, however, dipped by 1.5% to US$44.26 from US$44.94m.
For the six months to 30 June 2010 Tasek's net profit rose by 14% to US$11.18m from US$9.80m in the first half of 2009 on the back of a marginally lower revenue of US$84.6m versus US$85.8m.
In January 2011 Lafarge Malayan Cement Bhd posted a lower pre-tax profit of US$114m for the financial year ended 31 December 2010, from US$146m registered for 2009. Revenue slipped slightly to US$767m, during the period under review, from US$819m registered previously.
The company attributed the lower revenue to lower export volume and prices coupled with a weaker US dollar and reduced sales in neighbouring Singapore.
On a quarterly basis, the company's pre-tax profit declined to US$31.3m in the fourth-quarter of 2010 against a pre-tax profit of US$40.9m recorded in the same quarter of 2009. Revenue declined to US$204m, down from US$206m.
Regarding the financial outlook, Lafarge said that with more projects and contracts expected to be awarded under the 10th Malaysia Plan and the Economic Transformation Programme, the group expected a more active construction sector in 2011 and was optimistic of growth in domestic cement demand in 2011. It expected contributions from exports to remain low.
"With coal and other fuel prices already moving up in the beginning of 2011, the group is facing a margin squeeze due to rising costs of fuel and other materials," said the company at the time.
Conclusion
The Malaysian cement industry appears to be performing well relative to those of established economies, but is not as strong as well as those of other nations in the region. This has recently been highlighted by the sale of one Malaysian cement producer to Indonesia's PT Semen Gresik. In Malaysian Borneo there is potential for substantial infrastructural expansion as seen in the mid to late 1990s in Peninsular Malaysia. However, the current economic climate is unlikely to allow this to begin in the immediate future.
