Building material prices going up in H2

Speculation is rife that the prices of controlled building materials like steel bars and cement are set to increase further in the second half of this year.

Late last month, the Economic Planning Unit (EPU) held its first special committee meeting with cement and steel industry players to get feedback on their escalating raw material and operational costs.

It is believed that the Government will review the ceiling price of major building materials given the serious “pricing” issue especially in the domestic cement and steel markets.

The Government has also set up the National Price Council to review and evaluate the price control regime to ensure fair prices based on domestic and global markets and supply and demand situations.

It will also monitor, review and recommend measures to rationalise government subsidies and price support activities covering the production and supply, including imports, of all price-controlled items.

Industry players contacted by StarBiz are projecting higher steel bar and cement prices this year, given the Government's increasing concern over the worries of cement and steel manufacturers, particularly with the roll out of projects under the Ninth Malaysia Plan (9MP).

For steel, the Government had increased the ceiling prices of steel bars and billets effective Dec 1, 2007.

The 12% price hike was the third in 2007, after a 20% adjustment for both billets and bars in April and a second increase of about 7% to 9% in June.

Billet prices now range from RM1,907 to RM2,035 per tonne depending on the type and size, while prices for steel bars are from RM2,225 to RM2,419.

With this latest increase, the price gaps between the local ceiling prices and international prices have narrowed. But the new ceiling prices for both billets and bars are still below the international prices.

Ann Joo Resources Bhd executive director Datuk Lim Hong Thye believed that there was room for price hikes (for steel bars and billets) this year.

Since December last year, he said, the price of scrap (main raw material for steel) had jumped by 29% to about US$490 per tonne from US$380 per tonne previously.

This resulted in the prices of finished steel and billets rising to US$740 per tonne from US$630 per tonne previously.

“Millers are not asking for artificially higher steel prices but they want to see local steel prices closely tracking international steel prices,” Lim said.

He added that the proposed automatic pricing mechanism (APM) on steel or the lifting of the ceiling price on steel and billets would not stop steel prices from increasing further, given current strong global demand and high raw material costs.

As for cement, the implementation of the APM took effect on Jan 1 this year.

Lafarge Malayan Cement Bhd group managing director Alain Crouy said: “The drivers for the growth in demand for cement will be the implementation of the 9MP, stronger private investments and consumption. We hope to see a growth of 4% to 5% in the domestic cement market for the next two to three years,” he said.

Crouy said that due to the strong increases of cost factors of cement, it was also important to review the ceiling price of cement and to implement the APM.

CIMB Equities Research, in a recent note, said local demand for building materials would enjoy strong growth, given anticipation that construction activities would pick up and grow by 6%, which is the highest since 1997.

It has estimated a 6% growth in demand for long steel products and about 5% growth in cement demand in 2008.

In terms of supply, CIMB Research said across the board, utilisation rates in the steel industry were still low at about 60%, which would ensure sufficient supply.

However, utilisation in the cement industry is significantly higher at about 80%.

“In the event of tight supply, manufacturers are likely to switch from supplying to the export markets to supplying locally where margins are better. We expect local prices for both cement and steel to remain firm, if not trend higher,” the brokerage said. - By The Star

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