Introduction
Malaysia is a federal constitutional monarchy located in south east Asia. It is split into two roughly equal-size regions, Peninsular Malaysia, which shares the Malay Peninsular with Thailand, and Malaysian Borneo, which occupies around a third of the island of Borneo, which is shared with Indonesia (Kalimantan).
The country has approximately 29 million inhabitants over its 329,847km2, although the population distribution is far from even. Approximately 73% of its inhabitants live in Peninsular Malaysia, with just 27% in Malaysian Borneo.
The higher concentration of people in the western half is both the cause and effect of greater development in this region. Such development is typified by the country's impressive and highly-developed capital Kuala Lumpur. By contrast the eastern portion of the country remains far more rural and is yet to face anything like the development seen across the water. Malaysia is often described as being 'two countries in one,' such is the contrast between the regions.
MALAYSIA | |
GDP (2011 est.) | US$319bn |
GDP/capita (2010) | US$8373 |
Population (July 2011) | 28.8m |
Area | 329,847km2 |
Integrated cement plants | 11 |
Integrated cement capacity | 24.5Mt/yr |
Average plant capacity | 2.2Mt/yr |
Above: Summary data for Malaysia and its cement industry.
Source: GDP from World Bank Indicators; Population and area from CIA World Factbook; Cement data from Global Cement Directory 2012.
History
Modern Malaysia has its origins in the Malay Kingdoms of the region, which became protectorates under the British Empire in the 18th Century. In the Second World War, the territories were invaded by Japan from 1942 to 1945. After a transitional period that followed the war, the British territories on the peninsula became independent as the Federation of Malaya in 1957.
Modern-day Malaysia was formed in 1963 when the territories in what is now Malaysian Borneo joined the Federation. Singapore was also part of Malaysia at this time but it left in 1965 after just three years.
In the first few years of independence, Malaysia endured a Communist insurgency, like Indonesia to the south. It also faced frequent confrontation with Indonesia in Borneo, where the Philippines also staked a claim to the region of Sabah.
By the mid 1990s the Malaysian capital Kuala Lumpur was the architypal example of a successful 'Tiger' economy. Much of the economic development took place under the 22-year term of Prime Minister Mahathir bin Mohamad. This period, which lasted from 1981 to 2003, saw Malaysia diversify its economy from dependence on raw material exports to services, manufacturing and tourism. This policy has since been successfully continued by subsequent governments.
Economy
Today, Malaysia enjoys one of the most developed economies in the region, enjoying a GDP/capita ratio well above that of Indonesia, Vietnam, the Philippines and China. Only South Korea, manufacturing epicentre Taiwan and the anomalous city-state of Singapore rank higher in terms of GDP/capita in the region.
Malaysia's economy is similar in size to its southern neighbour Singapore, although Singapore's population is only a fraction of Malaysia's. It is estimated that Malaysia's GDP was nearly US$320bn in 2011.
At present, Malaysia is a strong manufacturer and exporter, with a healthy trade surplus of US$44.7bn in 2011. Its main exports are to Singapore (13% of all exports), China (13%), Japan (10%), the United States (10%), Thailand (5%) and Hong Kong (5%), to which it supplies a mixture of oil and gas, rubber, electronics, palm-oil, other agricultural products and textiles. By far the largest sector, however, is the country's fossil fuel industry, which is led by Petronas. As the state oil producer, Petronas dominates the fuel sector in the country and provides an incredible 40% of all government revenues. Although the country has recently benefitted from increases in world oil prices, the government is understandably taking steps to reduce the degree to which it relies on Petronas, while retaining its extremely valuable contribution. Due to its high reliance on exports, the country remains vulnerable to further slowdowns in neighbouring economies and the world economy in general.
The country's main imports are electronics and machinery, processed petroleum products and plastics, iron and steel, which are broadly obtained from the same countries as those it exports to.
While it is currently defined by the World Bank as a 'middle income' country, the current government (under Prime Minister Najib Razak) is looking to build upon the solid economic foundations laid since the 1970s and reposition Malaysia as a 'high income' country, defined as a GDP/capita over US$12,276, by 2020. Based on its 2010 GDP/capita of US$8373 the country would have to grow its economy by an average of US$390/yr over the decade to achieve this target, an average year-on-year increase of 4.6%. It is estimated that the country expanded its GDP by 5.2% in 2011, suggesting that it has made a good start towards hitting its 2020 target. A look at the adjacent GDP/capita graph shows that such a growth rate has been achieved over sustained periods before; between 1986 and 1997 and in the mid 2000s.
Cement - Introduction
The description of Malaysia as 'two countries in one' certainly rings true for its domestic cement industry. As one would expect with such a difference in relative populations, the high level of development in Peninsular Malaysia is supported by a significant cement industry. It has a mixture of plants run by local producers and multinationals, three run by Lafarge Malayan Cement and an Aalborg white cement plant. A staggering nine of the 10 cement plants in Malaysia are on the peninsular side, with only one integrated cement plant, the 1Mt/yr CMS Cement plant at Kuching in Sarawak, in Malaysian Borneo. This means that this region, which has around 7.5 million inhabitants (about a quarter of the country's total population), has just 4% of its integrated cement capacity.
As well as the relative development of the two regions of Malaysia, the uneven cement plant distribution also highlights the high development potential of Malaysian Borneo in the coming years.
Above: Map of Malaysia showing major cities, neighbouring countries and areas of water and integrated cement plants.
Source: Cement data from Global Cement Directory 2012.
(click on the image to open a PDF showing a larger version of the map with a list of integrated cement plants in Malaysia.)
Cement - Major players
Lafarge Malayan Cement: The facilities that now comprise Lafarge Malayan Cement have their origins in the incorporation of Malayan Cement as a subsidiary of UK cement producer Blue Circle in 1950. The company built and operated Malaysia's first industrial-scale cement plant, which opened in 1953 at the Rawang site with a capacity of just 0.11Mt/yr. In 1958 the site was expanded to include a second kiln, boosting its capacity to 0.3Mt/yr. The first plant was joined by Malayan Cement's second plant at Kanthan in 1964. It too was expanded shortly after commissioning. In 1967 the firm underwent a merger with PMCW to form Associated Pan Malaysia Cement (APMC).
Following steady production in the 1970s, 1980 saw the commissioning of a third kiln at Rawang, which took the plant to 1.5Mt/yr. In 1984 the Langkawi Plant was commissioned. It was upgraded in 1985. The early 1990s saw significant overhauls of the Rawang (kiln 3 and Kanthan (kiln 3) sites to 1.5Mt/yr and 1.0Mt/yr respectively. In 1998, a fourth kiln was commissioned at Kanthan, with a capacity of 1.8Mt/yr.
Over half a century of British control came to an end in 2001 when France's Lafarge acquired all of Blue Circle's global cement interests. A new corporate identity was subsequently launched in 2002 and the company completed its transition in 2003 when it officially changed name to Lafarge Malayan Cement.
Lafarge is now the largest cement producer in the country, both in terms of number of plants and installed capacity. Its three plants are all located on the western side of Peninsular Malaysia and have a combined capacity of 12.23Mt/yr.
Cement Industries of Malaysia: Founded in Kangar, Cement Industries of Malaysia (CIMA) has been involved in cement manufacture since 1975.
CIMA is the only cement manufacturer with multiple integrated facilities in Malaysia other than Lafarge. It operates the 1.27Mt/yr Negeri Sembilan Cement Industries' Bahau plant in the south of Peninsular Malaysia and the 2Mt/yr CIMA plant at Perlis in the extreme north near to Thailand, making it the second largest producer in the country by capacity.
Tasek Corporation: Tasek Corporation was established in 1962 to satisfy Malaysia's increasing demand for cement. Its plant in the Tasek Industrial Estate started production in 1964 with a capacity of only 0.25Mt/yr, taking advantage of excellent nearby limestone reserves and strong infrastructure links. The plant has undergone a series of upgrades to keep up with demand, and now has a 2.3Mt/yr clinker capacity.
Cement is transported from the plant directly to users by road and rail but can also be transferred to Tasek's packing and distribution terminal at Sungai Buloh. From there it is transferred to other areas in Malaysia.
Cement - Other players
As well as Lafarge Malayan Cement, CIMA and Tasek, plants are also operated by local producers, namely YTL Cement, Pahang Cement, Perak-Hanjoong Cement, Aalborg Portland Malaysia and CMS.
The Aalborg site, which has operated since the mid 1980s, is notable for being the only white cement plant in Malaysia.
The CMS plant at Kuching, which is controlled by Cahya Mata Sarawak Group, has operated in Sarawak in Malaysian Borneo since 1978 and remains the only integrated cement plant in the region. Now with an installed capacity of 1Mt/yr, it was joined in 1998 with a 0.75Mt/yr grinding unit at Bintulu in north east Sarawak. Holcim has a 1.2Mt/yr grinding plant at Johor Bahru.
Cement - Production, consumption and sales
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. In 2010 demand steadied, with the first half of 2010 seeing demand flat compared to 2009. This meant cement demand of around 7Mt over the six-month period.
Overall in 2010, Tasek Corporation reported a 1.2% increase in cement consumption for the whole year relative to 2009 in Peninsular Malaysia. It reported a massive 8% year-on-year increase in Malaysian Borneo, which was due to a lower infrastructure base. While the private sector is taking an increasingly important role, government projects like the 100-storey Warisan Merdeka building, the US$12bn Mass Rapid Transit system and other infrastructure projects to be implemented under the Economic Transformation Programme continued to bolster demand.
In 2011 Tasek reported 'challenging' conditions for the Malaysian cement industry due to a lack of major projects in Peninsular Malaysia and a hangover from uncertainty on the world financial markets, with specific reference to the Eurozone. With overall cement capacity utilisation running at 85% in 2011, Tasek said that its own profitability had been maintained, "mainly due to higher sales volume and lower cost of production in its cement and ready-mixed concrete businesses despite competitive pricing in the market." The company originally forecast that the cement market would expand by 2-3% in Peninsular Malaysia and by 8% in Malaysian Borneo, but final figures are not yet available.
The financial performance of Lafarge Malayan Cement, Malaysia's largest cement producer, was strong in 2011. Its cement sales were up by 11% year-on-year compared to 2010, with revenue rising by nearly 10% from US$758m in 2010 to US$832m in 2011. Coupled to steadily increasing cement prices in the country, this allowed Lafarge Malayan Cement to clock a 9% increase in net profit to US$102m from US$93.4m in 2010.
Conversely Tasek Corporation reported a small increase in revenue in 2011 compared to 2010, seeing a rise from US$180m in 2010 to US$185m in 2011. Despite this, its operating profit was lower in 2011 than in 2010, decreasing by US$58.1m to US$43.2m. The group's net profit for the year was US$33.7m, a third lower than the US$50.3m that it made in 2010.
Cement - Forecast
Tasek Corporation has forecast that the construction sector as a whole to grow by a further 7% in 2012, citing plans to upgrade rural infrastructure links using a mixture of concrete and asphalt and the expansion of clean water projects in poorer areas.
The RHB Research Institute has forecast that the prospects for the cement sector remain positive in 2012 due to a narrowing demand-supply gap. It expects cement consumption to rise to 18Mt/yr in 2012 compared to just 16Mt/yr in 2010. However, it also said that cement capacity would remain at its current level for the foreseeable future in the absence of expansion by major players. This has certainly been the case recently, with no completed expansions in the country. This is in contrast to neighbouring Indonesia, which has previously imported a large proportion of Malaysia's excess capacity.
For 2013 RHB forecasts that capacity could increase by as much as 25% with expansion projects from YTL Cement, CIMA and Hume Cement. It forecasts 19Mt of cement to be consumed in 2013, a 6% increase year-on-year.
"On the back of the narrowing demand-supply gap over the next (year), we foresee less intense competition and hence better pricing power for players," said RHB Research. "A better pricing power translates to better margins and profitability as well as ability to pass on higher input costs such as thermal coal and electricity tariffs."
RHB also pointed out a recent shift in the regional cement supply that Malaysian cement manufacturers may benefit from. With Japan looking to keep more of its domestic cement production for tsunami reconstruction projects, it is now less able to supply Singapore with cement, which will have to source material from elsewhere. "Malaysia is a natural choice given the close geographical proximity. That means low transportation charges," said RHB.
Going forward therefore, the Malaysian cement industry appears to be in the hands of the Malaysian government, which is still capable of supplying large construction contracts, an increasingly active private construction sector and outside influences beyond the country's direct control. With capacity additions expected to come online in 2013, the industry at home will change dramatically in a short space of time. How the industry responds to those changes remains to be seen.