Not all doom and gloom for cement industry


“We believe the stable supply-demand dynamics for cement will provide more forecasting certainty as compared with steel, which is more volatile driven by various externalities, ” the UOBKayHian research house said in a report yesterday.

PETALING JAYA: Cement companies are expected to break even in 2022, after four years of losses and when the bulk cement average selling price (ASP) is anticipated to rise above RM240 per metric tonne (MT).

In its recent quarterly results filing, Malayan Cement returned to the black in the first quarter of 2021 following eight quarters of losses after benefitting from its ASP of RM210 to RM220 per MT, said UOBKayHian.

“Due to movement control order (MCO) 3.0 being implemented in the second quarter of 2021, we expect earnings to fall in the second quarter before picking up again gradually from the third quarter onwards.

“We believe the stable supply-demand dynamics for cement will provide more forecasting certainty as compared with steel, which is more volatile driven by various externalities, ” the research house said in a report yesterday.

UOBKayHian said steel companies may continue to report profits in the second half of 2021, but with lower margins.

It said margins will be affected by subdued local demand, oversupply and easing of ASPs.

“Steel prices may have hit peak levels given China’s plan to limit its soaring commodity prices due to its carbon neutrality agenda.

“Since stockists have been stockpiling as they expect higher prices ahead, we believe demand will soften in coming months as orders are expected to taper off.”

As at June 4, 2021, UOBKayHian said local steel billet prices stood at RM2, 750 per MT, while steel bar prices were at RM3, 175 per MT.

“This is in tandem with China, where the hot rolled coil price was RM3, 468 per MT, while the bar price hit RM3, 283 per MT.

“We believe the strong ASPs have been priced in as most steel players are trading at one standard deviation above their five-year mean.”

UOBKayHian said it does not expect the outlook for steel to improve in the second half of this year, as the segment is still clouded by weak local demand and oversupply that has yet to be addressed.

“On the domestic front, steel demand is expected to experience slow growth in 2021 as major steel plants face the impact of the 10% workforce restriction under MCO 3.0. Even when operations resume in the second half of 2021, utilisation rates may remain low as local demand is weak.

“A slowdown in mega and infrastructure projects will definitely lead to weaker steel consumption. The absence of industry consolidation and the presence of foreign competitors continue to threaten local steel players’ growth.”

Additionally, UOBKayHian said it expects utilisation rates to improve in the second half of 2021, as economic activities slowly resume and construction activities gradually restart once Malaysia reaches its herd immunity target by August of this year.

“This will lead to firmer bulk cement prices and act as the primary driver of improvements in the cement outlook, ” it said.

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