Lafarge to record improvements in cement production despite weak demand

Borneopost Sat, Nov 17, 2018 12:17am - 5 years View Original


Lafarge is expected to record improvements in cement production for 3Q18, despite demand for cement remaining weak. — Reuters photo

KUCHING: Lafarge Malaysia Bhd’s (Lafarge) is expected to record improvements in cement production for the third quarter of 2018 (3Q18), despite demand for cement remaining weak.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) has forecasted full-year financial year 2018 estimate (FY18E) cement production of 5.8 million metric tonnes (MT) for Lafarge, representing 36 per cent of Kenanga Research’s expected domestic consumption of 16 million MT for the year.

“For the coming quarter, we expect to see improvements in Lafarge’s cement production estimated at 1.9 million MT cement production which is versus 1.8 million MT in 2Q18,” Kenanga Research said.

Despite these improvements, Kenanga Research observed that domestic cement demand remains weak on a year on year (y-o-y) basis.

It noted that 3Q18 (July-September) apparent cement consumption plunged to 4.3 million MT, down 19 per cent y-o-y, bringing the first nine months of 2018 (9M18) cement consumption down to 12.2 million MT (down 10 per cent y-o-y).

“Hence, we are expecting FY18E apparent cement consumption to be worse off than FY17, largely on weaker demand dragged by soft residential projects and slowdown in infrastructure activities.

“For FY18, we expect apparent cement consumption (production+ imports – exports) to decline to 16 million MT, (down 10 per cent y-o-y) against FY17 consumption of 17.6 million MT.”

According to Kenanga Research, based on channel checks, cement rebates dished out in 3Q18 for bulk cement represented 44 per cent discount to the market price of RM370 per MT, whilst bag cements were priced at a lower discount of 22 per cent to the market price of RM19.25 per bag.

The research arm noted the prevailing high rebates were due to weak demand from residential and commercial property segments and slow infrastructure construction progress coupled with on-going overcapacity issue.

“Based on the current rebates trend, we anticipate the price war to further intensify amidst an overall subdued cement demand outlook and exacerbated by industry overcapacity.”

In its 9M18 results preview, Kenanga Research expected 3Q18 results to track 2Q18 performance with a core net loss (CNL) of RM90 million, bringing 9M18 CNL to RM247.5 million. This accounted for 82 per cent and 106 per cent of the research arm’s and consensus’ full-year net loss forecasts of RM303.1 million and RM232.9 million, respectively.

Hence, the research arm maintained its FY18 to FY19E forecast at this juncture. Its CNL forecast for FY19E amounted to RM247 million.

“Although production may be slightly better in 3Q18, we note that cost escalations had eroded that effect; thus we project 3Q18 CNL of RM90 million premised on an average selling price (ASP) of RM233 per MT, total apparent cement consumption of 4.3 million MT in 3Q18, and an assumed cost structure similar to 2Q18.”

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