KUALA LUMPUR (July 13): AmInvestment Bank Research has upgraded the building material sector to “Neutral” (from Underweight) and said it sees a mixed picture for the sector.
In a sector update today, the research house said it believes the cement sector in Peninsular Malaysia has turned the corner, with more rational competition among the players following a major industry shakeout in 2019.
“For aluminium, we do not expect a V-shaped recovery in prices despite the gradual recovery in its consuming industries, given the build-up in inventory during the pandemic (as it is very costly to shut down and restart aluminium smelting plants).
“Meanwhile, despite the weak demand, local steel prices will at least hold up as local producers export the excess supply,” it said.
AmInvestment said cement prices in Peninsular Malaysia are expected to hold despite weak demand.
It said despite weaker demand due to the impact of the Covid-19 pandemic on construction productivity, and a tepid new infrastructure and building job flow in 2H20F, it expects cement prices in Peninsular Malaysia to hold steady (i.e. not to fall) at RM250/tonne in 2H20F (cement prices have been rising steadily from RM200/tonne in 1H19 to RM235/tonne in 2H19 and RM250/tonne in 1H20).
“We believe this is because of: (1) the emergence of a price leader in the market (with a combined market share of close to 60% in terms of clinker capacity) following YTL Cement’s acquisition of Malayan Cement in 2019; and (2) industry supply pressure having significantly eased with the recent shutdown of one clinker plant each by Malayan Cement and peer CIMA, that has effectively put clinker capacity totalling 2mil tonne per annum (8% of total industry clinker capacity) offline.
“On the back of low construction productivity and limited new infrastructure and building contracts in 2H20F, we project cement consumption in Peninsular Malaysia to decline by 30% to 10.5 million tonnes in 2020F (from 15 million tonnes estimated in 2019),” it said.
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