In the latest sector update report on construction sector, MIDF Research has reiterated its POSITIVE rating on the sector as cost headwinds remain manageable. The prices of steel bars maintained its downward trend in December 2022, marking its sixth consecutive month of decline.
Based on the Department of Statistics (DOSM) data released yesterday, the average prices of five types of mild steel bars and four types of high tensile deformed bars it tracked saw a reduction of -0.6% month-on-month (mom) to RM3,602.94 per tonne (November 2022: -1.04%mom to RM3,625.50). On a year-on-year basis, it was still an increase of +7.8% year-on-year (yoy) but at its slowest pace since March last year. This was in line with the global decline in iron ore and steel prices.
Lower in most regions. Average steel bar prices in the Peninsula were -0.5%mom lower to RM3,135.05 per tonne. The central region saw the highest decline by -1.2%mom to RM3,335.48 per tonne. In East Malaysia, average prices retreated -0.7%mom to RM3,836.88 per tonne, with the highest decline recorded in Tawau by -1.6%mom to RM4,070.92.
Cement prices. The binding substance averaged at RM21.04 per 50kg per bag in December 2022, marked an increase of +0.3%mom from RM20.98 in November 2022, its second straight month of increase.
This was mainly due to an increase in the Peninsula by +1.8%mom to RM18.73. The East of the Peninsular posted the strongest increase by +3.6%mom to RM19.92. Over in Sabah and
Sarawak, average prices saw a marginal decline by -0.4%mom to RM22.19, on the back of declines of -1.1%mom in Kota Kinabalu and Sandakan. Meanwhile cement prices in Tawau, Kuching, Sibu and Miri remained unchanged.
The research house’s take. The ongoing decline in steel bar prices remains a positive development for construction players as they have been taking on higher price pressures over the past two years when steel bar prices rose for 19 consecutive months to its peak of RM3,901.81 per tonne in June 2022.
On the flip side, the research house expects cement prices to remain elevated at current levels
and it does not discount the possibility of further hikes, especially in the Peninsula due to elevated coal prices and the impact of higher electricity surcharge from January to June this year.
In Sarawak, the sole cement manufacturer Cahya Mata Sarawak raised prices by an average of 10% in Feb-22 for the first time in six years and has no plans for further increases, as the group seeks to focus on improving its plant efficiency, procurement and logistic arrangements to better manage its margins.
MIDF has reiterated its POSITIVE view on the construction sector as the current cost headwinds remain manageable. The issue of foreign labour shortage has been also alleviating, which will go on to improve further as the government agreed to ease the conditions for the hiring of foreign workers and to shorten the process.
Uncertainties for the sector remain with the potential reviews, delays or even termination of infrastructure projects but the research house still expects MRT3 to be the bright spot for the sector, albeit a delay in the rollout of its main packages, as it is a crucial final piece to complete the urban rail network in the Klang Valley.
MIDF Research’s preferred names for the sector are still the larger players with strong balance sheets and considerable overseas presence namely Gamuda, Sunway Construction and IJM Corp.
