Slowing down: A weaker ringgit has impacted cement firms’ balance sheets

In 2015 the Malaysia Investment Development Authority approved investments totalling RM3.7bn ($915.9m) in 25 projects in the non-metallic mineral products industry. Of the investments and projects in this subsector, 10 projects involved cement and concrete, with an investment value of RM253.9m ($62.8m), or 7% of the total for the non-metallic mineral products industry. The cement and concrete industry makes up around 4% of GDP as well as supporting the country’s trade balance with exports to Australia, Indonesia, India and Sri Lanka.

Forex Troubles

As of October 2015, the ringgit had declined 27.5% against the dollar since the beginning of the year. Such disadvantageous exchange rates are squeezing bottom lines in the cement industry. This is a result of imported key inputs such as coal and gypsum being paid for in dollars. Cement industry stakeholders have been trying to moderate the impact of the weak ringgit by more efficiently managing the use of raw materials such as coal.

In addition, the import of clinker has gone up by about 20% due to the weak ringgit. Malaysia imported $81.4m of clinker from January to August 2015, compared to $77.9m in the same period of 2014. Adding further pressure, a 6% goods and services tax imposed on building materials including cement, and increases in coal and electricity prices, are causing headaches in the industry. As a result, Maybank Investment Bank Research expected cement industry growth of 5% for 2015, down from 8-9% in 2014.


In November 2015 Lafarge Malaysia acquired Holcim, a unit of Holcim Indonesia, in a $71.2m deal. With a production capacity of 12m tonnes per year and a market share of almost half the country’s total capacity of 25m tonnes per year, Lafarge Malaysia was already the market leader in cement production capacity. According to Lafarge the merger would boost its installed cement capacity to 14.1m tonnes per year from 12.9m tonnes annually.

Supportive Spending

In the short term, the many large infrastructure projects laid out in the 2016 budget are expected to bolster the construction sector’s performance. However, Lafarge Malaysia and YTL Corporation have seen the problems caused by the ringgit’s depreciation showing up in their financial results. In the first half of 2015, Lafarge Malaysia’s revenue fell to $318m, down 2.5% compared with the first half of 2014, while net profits decreased by 9% to $32m. This followed on the heels of a 3.8% fall to $640m for 2014 as a whole compared to $666m in 2013. Lower cement prices were partially to blame, according to Lafarge. YTL Corporation also reported a 12.7% drop in revenue to $3.85bn and a 31% fall in net profit to $257m for the financial year ending June 30, 2015. It also blamed cement for the losses.

Up-to-date figures for the industry are difficult to come by, but in August 2014, YTL Cement’s production capacity was reportedly 5.95m tonnes, Cement Industries of Malaysia produced 3.4m tonnes, Tasek Corporation 2.3m tonnes, and Hume Cement and Holcim Malaysia were at 2m tonnes each, according to accounts in local media.

In contrast, a construction boom in Sarawak has buoyed Cahya Mata Sarawak (CMS) Cement, thanks in part to ongoing work on the Pan-Borneo Highway. CMS Malaysia reported that group revenue rose 7% to RM1.79bn ($443.1m) in 2015 from RM1.67bn ($413.4m) in 2014, driven mainly by its construction materials and trading division and its construction and road maintenance division. Despite revenues increasing by 2%, its cement division recorded a 14% drop in pre-tax profit of RM103.17m ($25.5m) over 2014, a decline attributed to the higher cost of imported cement and raw materials.

Industry stakeholders will be watching the ringgit and oil prices very closely, as the ability of large infrastructure projects to support the cement industry will be tested in the medium term if they remain low.