In a recent sector update, RHB Investment Bank Research reaffirmed its “overweight” position on the basic materials sector, with a particular focus on the cement industry. They express confidence in the cement market’s prospects, citing its synergy with the construction and property sectors.
The research house predicts that cement demand will continue to grow in the medium-to-long term, largely driven by the commencement of significant infrastructure projects in Malaysia. Press Metal Aluminium Holdings Bhd and Lafarge Malayan Cement Bhd are identified as their top picks in this sector.
RHB IB’s optimism is grounded in several factors, including current low inventory levels, the push towards green initiatives like solar panels and electric vehicles (EVs), and a projected recovery in China’s manufacturing and property activities in the second half of 2024. They highlight that Lafarge Malayan Cement stands out due to its dominant market position, pricing power, and direct benefits tied to the resurgence of local construction and property projects.
The research house points out that the low inventory levels indicate increasing demand, a positive sign for the sector. Despite higher aluminum production in China, there hasn’t been a significant buildup of aluminum inventories on the Shanghai Futures Exchange, and exchange stocks have remained consistently low. In July, China’s aluminum imports saw a 20% year-on-year increase due to low stocks and expected higher demand, particularly from the EV industry.
In the Malaysian market, bulk cement prices have remained high, with a year-on-year increase of 24.7% as of August, reaching RM380 per tonne. The year-to-date average selling price hovers around RM380 per tonne, significantly higher than the three-year average from 2019 to 2021, which was approximately RM216.80 per tonne.
However, RHB IB acknowledges potential downside risks for the sector, including a decline in LME aluminum prices, a slowdown in global economic growth, unexpectedly high raw material costs, lower-than-expected cement average selling prices, and reduced cement production.