The cement price hike of close to 50% will spark a chain reaction in the construction and property development industry, which may likely lead to a property price increase of 10% to 15%.
According to the Johor Master Builders Association (JMBA) President Tee See Kim, cement is an essential building material used from the piling stage and the foundation to the structure and even interior design,
The exorbitant price hike of close to 50% will have a spillover effect down the line including hardware shops, cement products suppliers such as roof tiles and cement pipe manufacturers; as well as interior design companies.
"Conservatively, property prices may increase 10% to 15% in the future," Tee told EdgeProp.my.
Earlier in June 2019, the JMBA council met to discuss this issue following complaints from members of the price hike. JMBA have over 300 members consisting of master builders and precast concrete manufacturers.
"Some members have received notices from four cement manufacturers that the price will increase from RM200 per tonne to RM290 per tonne [an increase of 45%]," said Tee.
According to EdgeProp.my's, some builders have received a circular from one of the local cement manufacturers stating that the price of cement and ready-mixed concrete will increase by RM80 per tonne and RM40 per cubic metre from mid-June 2019.
A property developer told EdgeProp.my that if the price of ready-mixed concrete increases to RM40 per cubic metre, the cost of every 60ft of built-up space is estimated to increase by RM40.
"This is based on the calculations of the cement manufacturer's price, not the selling price from nominated agents. The actual impact on the development cost could be higher," said the developer.
According to him, developers and contractors will normally purchase cement from nominated agents, while ready-mixed concrete (a building material made by gravel, sand, water and cement) is from distributors. Precast concrete manufacturers will buy directly from cement manufacturers.
Price hike inconsistent with demand and supply
Meanwhile, Tee said the unexpected price hike will cause contractors to suffer heavy losses as the cost of their existing projects has been agreed to and locked in. Furthermore, "the local construction industry is still experiencing a downturn at the moment and there is still surplus cement in the market. The price hike is inconsistent with the principle of supply and demand," he pointed out.
The Cement and Concrete Association of Malaysia had issued a statement on Sunday explaining that the cement industry is highly capital intensive and hence needs to have a reasonable return on its investments in order to be able to meet the expectations of all its stakeholders.
The association stressed that the cost increases such as higher electricity tariffs over the past few years following the withdrawal of the special industrial tariff (SIT), and the implementation of the imbalance cost past through (ICPT) mechanism has also increased the burden on manufacturers.
Tee noted that the cement manufacturers might have their reasons to increase the price but stressed that any price increase should be gradual and the customer should be given at least three months' advance notice.
He also urged the authorities to look into this matter to ensure that the cement manufacturers maintain stable supply in future - as any cement shortage in the market will jeopardise the industry.
Unlike other industries, there are only a few cement manufacturers in Malaysia and the recent merger of two major cement manufacturers have reduced competition, making the industry an oligopoly market, where prices can be 'controlled'," said Tee.