It is reported that with the Economic Transformation Program coming into full speed in 2012, cement players are expected to ride on this good fortune albeit at a slower pace after the coming Chinese New Year.
The research arm of Kenanga Investment Bank Bhd, in its research note, opined that most cement companies would likely encounter a slight trickle in their businesses following the typically slower construction activities post CNY.
It noted that "As such, we believe the first quarter of 2012 earnings will be muted given the typically slower construction activities post CNY. For the overall 2012 year, we believe the sector will be supported by the Tenth Malaysia Plan and ETP projects. We are positive on cement companies over the steel companies given the margins expansion from lower coal cost, which has fallen by 18% to USD 114 per tonne from the peak this year."
On top of that, the 7% additional capacity from Hume Cement Sdn Bhd expected in 2013 would be offset by the greater demand from the ETP projects such as the light rail transit, mass rapid transit, and KL International Financial District projects, just to name a few.
Meanwhile, the report added that rebates for the cement segment should normalize at rates between USD 10 to USD 30 per tonne in view of the higher sales volume for the incoming CNY festivity.
Another key sector that would ride on the influx of ETP projects was steel as the division had benefited from the property market boom last year.
Steel consumption, on the whole, made up an estimated 20 per cent of the total property development costs and had helped boost sales orders for both Ann Joo Resources Bhd and Malaysia Steel Works Bhd.
Nevertheless, the research team placed a less than optimistic outlook on these companies as it expected steel prices to be somewhat soft given the dumping activities in China as well as the crisis in Europe.
The research firm affirmed that "Although sales volume from the steel companies is predominantly domestic, it is still exposed to the gyrations in volatile international prices. Steel prices have recently taken a dip due to the dumping activities in China. This was subsequent to China’s tight monetary policies, which caused steel mills to dump prices in order to repay their debts."
It added that "This was reflected in the sudden fall in prices towards end September, hence we are expecting some margins squeeze due to the timing difference on higher raw material prices. We are lukewarm on the purchasing sentiment as customers are holding back purchases in anticipation of lower prices and the slow pace of recovery in developed countries."
(Sourced from www.theborneopost.com)
