Analysts: Cement demand to recover at slower pace

KUALA LUMPUR: Prospects of the cement industry will likely remain lacklustre given the weakness in the property market and slow pace in achieving price rationalisation.

Affin Hwang Investment Bank Bhd (AffinHwang Capital) believed cement demand will take a longer time to recover due to the prolonged weakness in the property sector and slower demand pick-up from the infrastructure sector.

“We recently held a property and real estate investment trust (REIT) virtual conference hosted by property experts including presidents/chief executive officers (CEOs) of the Malaysian REIT Management Association (MRMA), Real Estate and Housing Developers’ Association (REHDA) and CBRE|WTW,” the research firm recalled in its building materials sector update.

“Overall, they have a cautious view on the prospects of the property and REIT industry in 2020-2021 due to the disruptions from the Covid-19 pandemic.

“They believe a recovery in the property market would only materialise in 2022. We concur.”

Looking ahead, AffinHwang Capital believed that cement demand from the property sector will remain lacklustre due to the persistent property glut.

“We expect fewer new property launches in 2020-2021 due to the weak buyer sentiment and high residential property overhang.

“In the first half of 2020 (1H20), housing starts fell 29 per cent year on year (y-o-y) to 33,493 units, while overhang units remained high at 31,661 units.”

AffinHwang Capital also expected the government to revive some mega infrastructure projects in the upcoming Budget 2021 in order to pump-prime the economy.

“This is a catalyst for the cement sub-sector. However, we are of the view that the trickle-down effect to the cement sub-sector will lag the implementation of the infrastructure projects.

“Site preparation works usually take six to 12 months before concrete structures, which use cement, can be built.”

Thus, the research firm believed the cement sub-sector will only start to see a demand recovery from 2H21 at the earliest.

— AFP photo AffinHwang Capital also expected the government to revive some mega infrastructure projects in the upcoming Budget 2021 in order to pump-prime the economy.