By THE EDGE
An automatic price mechanism (APM) for cement will expose consumers, including developers and contractors, to potential abuse by the manufacturers, said the Real Estate and Housing Developers’ Association (Rehda).
It said the manufacturers, being the direct beneficiaries, would logically project rising costs. “This is a no-lose situation for cement manufacturers as a predetermined profit margin may be added onto costs,” Rehda said in a statement yesterday.
It said cement should remain a controlled item and if any shortages should arise, importation of cement and cement products should be allowed.
“The APM is unjustified and would seriously jeopardise the government’s 9th Malaysia Plan and long-term goals of providing affordable housing and world-class infrastructure for the nation,” said Rehda.
It said the APM, which will come into force on Jan 1, 2008, was contrary to national interests and would adversely impact house buyers and consumers of cement.
“The need for a price control mechanism is to ensure continued supply and reasonable pricing and that development in the country is not jeopardised.
“By introducing an APM, prices would now be determined by the manufacturers proposing a cost structure that cannot be examined or determined by the consumer or the government,” it said.
Rehda said clinker, the raw material used for cement production, was also exported by the manufacturers themselves.
“We do not know whether the export of clinker would be against the interests of consumers when priority should be given to produce what is required by the market locally.
“Furthermore, the export of clinker may introduce an artificial pricing element to the calculation of costs,” it said.
Rehda said cement manufacturers were already reaping huge profits and as the APM was cost-plus in nature, cement companies would no longer be having competition and face no business risks.
“Rather cement prices would likely be revised upwards at each four-month review period. We do not see why given an APM, manufacturers would want to show that costs have gone down.”
Rehda added that the guaranteed profits of these cement companies would be at the expense of all builders and homebuyers, who will be forced to absorb these higher costs.
“Furthermore, with the absence of a ceiling price and a ban from importing, the industry would not be able to benefit from lower world cement prices; they would be forced to accept higher prices even if it would be cheaper to import,” it said.
Rehda also said that an APM would encourage monopoly-type behaviour among the cement manufacturers — encouraging an oligopoly, creating market inefficiencies and distorted pricing vis-à-vis the global market, and underutilisation of installed production capacity.
It said industry sources estimated that the industry’s utilisation rate was only 52% in 2006, with cement production at 13.5 million tonnes and installed capacity of 25.95 million tonnes per annum.
“With the current excess capacity, cement production should be increased to adequately meet the market’s requirements, encourage competitive pricing and not cartel-like pricing which consumers are experiencing now,” Rehda said.