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Construction material prices seen to be steady

KUALA LUMPUR: The anticipated increase in demand for construction raw materials, with the rollout of major construction projects this year, will not lead to spiralling prices, said Master Builders Association of Malaysia (MBAM).

MBAM president Ng Kee Leen said the country’s liberalised cement and steel sectors would help improve supply to meet any demand surge.

He said the government’s liberalisation of the building materials sector had brought relief to the construction industry in terms of cost pressure, in particular for steel and cement that were key components of the industry.

“While the construction sector is expected to grow by 3% to 5% this year, there are excess capacities from local steel millers and cement manufacturers to meet local demand. Any shortages or increase in prices could also be solved with imports from neighbouring countries such as Thailand and Vietnam,” Ng told The Edge Financial Daily.

Since 2008, the government has gradually opened up the building materials sectors to allow for the import and export of steel and cement products, as the construction industry was pummelled by spiralling costs following record crude oil prices.

There have been concerns that the slew of major construction works expected to take off this year could put pressure on prices of raw materials, with key commodities such as iron ore and crude oil prices again showing signs of increase.

Prices of iron ore, a basic raw material in steel production, is expected to jump 30% this year to US$60 (RM201.60) per tonne, after key producers such as Brazil and Australia slashed prices by 33% in 2009 as the worse global recession since World War II snapped demand worldwide.   

Steel bars in East Asian market were trading at US$520 per tonne as of Jan 5 this year, up 5% from US$495 a month ago. Steel bar prices averaged around US$484 per tonne for most of last year.

Ng said the construction sector had shown a strong performance last year, with the sector’s contribution to gross domestic product increasing by 1.1%, 4.5% and 7.9% in the first, second and third quarter respectively last year as a result of government’s effort in rolling out a succession of projects under the various stimulus packages.

Ng added that the association was observing the building materials industry closely and was responding to its members as it kept them apprised of the latest updates.

MBAM has suggested that the government reduce the import duty and sales tax for heavy machineries used in construction on a systematic basis within the next two years to bring the rate down to 5%-10% for import duty and 5% for sales tax.

“Reduction of import duties for these heavy machineries would at the very least allow local supplier to be more competitive in terms of their price range and allow the local construction industry more options.

“The association will continue to urge the government to consider a further reduction this year, and will emphasise on price stability to ensure the sector continues to grow,” he said.    

Some of the major construction projects that are expected to kick off this year include the Klang Valley light rail transit (LRT) extension works estimated to cost RM7 billion, the RM2 billion low cost carrier terminal and the RM5 billion Gemas-Johor Bharu electrified double tracking railways project.

The government opened tenders for the RM10 billion Pahang-Selangor interstate raw water transfer project in December last year, while work on Murum and Hulu Terengganu hydroelectric dams projects are also expected to start or gather pace this year.

This article appeared in The Edge Financial Daily, Jan 11, 2010.

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