January 30, 2009 - According to statistics by the Confederation of Malaysian Tobacco Manufacturers, the overall industry volume in the first three quarters of 2008 dropped 2.2% from the same period a year earlier. With most markets sliding into an economic downturn, the Philip Morris (Malaysia) Sdn Bhd managing director Ilwoo Chong said the industry could see a slowdown in cigarette consumption.
"The Asian market is not a growing market. For Malaysia, it has come to a point where (growth) would be stagnant," Chong told The Edge Financial Daily.
Another player, British American Tobacco (M) Bhd (BAT), has been quoted as saying cigarette sales volumes would face pressure as hefty tax imposed on the industry would lead to price jumps. Also, another challenge starting this month is that cigarette packs sold in the country would have to bear pictorial warnings to discourage smoking.
Also, the Health Ministry was reported to consider plans to increase no-smoking zones.
With the introduction of the RM6 floor price (minimum pricing of RM6 for a pack of 20-cigarettes), the retail price difference between the Big Three brands and the extremely low-priced cigarettes (ELPC) would be reduced to as little as 50 sen per pack of 20s from a difference of RM2 to RM3.50 per pack. The ELPC brands had been steadily gaining market share as tax imposed on the tobacco firms led to more expensive cigarettes. From a market share of 2.5% in 2005, ELPC has raised its market share to 8% as at the second quarter of last year, according to a report by Maybank Investment Bank Bhd.
For the industry players, however, a bigger concern was the increase in illicit cigarettes. According to Chong, illicit cigarettes account for about 25% of industry share last year from 14% five years ago. The World Bank has stated that price differences between countries or states would clearly give rise the incentive to smuggle cigarettes.
Reference: 28-01-2009: Slowdown in cigarette consumption, says Philip Morris
by Lim Shie-Lynn, The Edge Daily, 1/28/2009.