The average prices of steel bars in Malaysia softened for the second consecutive month, in line with the decline in the
international prices of steel and iron ore, as expected when China authorities stepped in to curb the surge in iron ore prices back in Mar-23.
Based on the prices of five types of mild steel bars and four types of high tensile deformed bars tracked by the Department of Statistics Malaysia the average price declined -0.53%mom in Jun-23 to RM3,706.95 per tonne.
Prices of iron ore, the main ingredient for steel, have been on an uptrend since the end of May-23, on the back of expectations of stimulus measures by Beijing to boost aid the property sector. On Monday, the People’s Bank of China extended some of its financial support policies from a Nov-22 package to support the real estate sector until the end of 2024. This led to a +1.5% increase in China’s Dalian
Commodity Exchange (DCE) Iron Ore Futures to CNY816 per 100 tonnes as of yesterday. While this may be positive for iron ore prices, MIDF says it posits that the upside is limited as the Chinese authorities are firm on reducing the country’s steel output to reduce carbon emissions.
The decline came mainly from the Peninsular, led by the northern region with a -1.7%mom decrease to RM3,364.30 per tonne. The central and eastern region posted declines of -0.7%mom and -0.5%mom respectively to RM3,326.94 and RM3,178.18. In Sabah, the Kota Kinabalu and Sandakan regions saw declines of -1.3%mom and 0.9%mom respectively to RM3,656.43 and RM4,481.69 per tonne. Only the Tawau region saw an increase of +0.1%mom to RM4,065.96. In Sarawak, prices remained unchanged in Kuching and Sibu while Miri recorded a +0.2%mom increase to RM3,653.79 per tonne.
The average price for the binding substance continued to rise for the eighth consecutive month by +0.22%mom, its slowest pace of monthly increase since Dec-22 to RM22.87 per 50kg bag. This was on the back of higher selling prices and lower rebates offered due to higher raw materials cost. The northern region of the Peninsula recorded the highest increase by +1.4%mom to RM22.57 for every 50kg bag while the central and eastern regions rose +0.1%mom and +0.4%mom respectively to RM22.03 and RM22.49 respectively. Prices remained unchanged in Sabah and Sarawak.
The house maintains its POSITIVE view on the construction sector as the current cost headwinds remain manageable with the softening steel bar prices and the slower increase in cement prices. It expects the sector to benefit from improving job flows driven by Budget 2023 and also development plans in Sarawak to improve connectivity in the state, which is vital to serve as a gateway to Nusantara when Indonesia moves its capital to Kalimantan.
Top picks for the sector this year remain the larger players and those with stellar balance sheets and order books, namely Gamuda (BUY, TP: RM5.04), IJM Corp (BUY, TP: RM1.93), and Sunway Construction (BUY, TP: RM2.09). For the cement play,
being the direct beneficiary of the improving construction sector, we recommend Malayan Cement (BUY, TP: RM3.74).
