Recently, a common phenomenon is that the balance sheets of multinational companies are negatively affected by the exchange rate. As a result, there were two complaints this week from Malaysia's Cement and Concrete Association and Kenya's ARM Cement. Malaysia's currency, the Ringgit, has fallen 24% against the dollar since January 2015. It is mainly affected by the lower prices of crude oil and commodities such as palm oil.
For the cement industry, it is mainly caused by the payment of imported raw materials such as coal and gypsum in US dollars. In addition, a 20% increase in the import price of clinker has had some of the same effect. The government hopes that infrastructure projects will temporarily prop up the construction industry. Local market leader Lafarge (Malaysia) also cautiously agreed. This is accurate in the face of reality, but the devalued ringgit is already showing up in its financial results.
Lafarge Malaysia's profit fell to $318 million in the first half of 2015, down 2.5% from $326 million in the same period in 2014. Net profit fell 9% to $32 million. Full-year profit for 2014 fell 3.8% to $640 million from $666 million in 2013. The decrease in revenue was due in part to lower prices, high operating costs from increased inputs, and higher transportation costs. This is in line with the decline in the value of the ringgit against the dollar since mid-2014. Lafarge Malaysia reported an increase in both revenue and profit in the first half of 2014.
Lafarge (Malaysia) is the market leader by far, with 12 million tons per year of cement production capacity in China, accounting for nearly half of the country's total cement production capacity of 25 million tons per year. However, it is not the only cement producer that is struggling. At present, YTL has announced a 12.7% decline in revenue to $385 million and a 31% decline in net profit to $257 million for the fiscal year ending June 30, 2015. Although the company operates in a variety of businesses, it also partly blames losses in its cement business. In the financial year ended June 30, 2014, it made a considerable profit driven by the cement business.
In contrast, Cahya Mata Sarawak (CMS) cement has benefited from a construction boom in Sarawak on the island of Borneo, and its market area is far from other markets. The ongoing construction of the Pan-Borneo Highway and other road projects has boosted its cement sales. As the only integrated cement plant in the state, it ordered a cement grinding line from Christian Pfeiffer in 2014 and plans to complete commissioning in early 2016. The plant will be the company's third mill in the state.
The impact of the devaluation has been fully reflected in the financial results of Lafarge Malaysia and YTL. Infrastructure investment provides a counter route, which Lafarge (Malaysia) wants, and CMS Cement is benefiting from the relative independence of the Sarawak market. However, continued low oil prices will test even diversified economies like Malaysia. Cement producers in other oil-producing countries should take note.
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