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#Exclusive* Costlier steel for Malaysian developers, builders

KUALA LUMPUR: Malaysian property developers are bracing for costlier steel, prompting the need to raise real estate prices against a backdrop of rising construction cost to preserve profit margins.

Real Estate and Housing Developers' Association Malaysia (Rehda) president Datuk Ng Seing Liong said the recent price hike by local steel mills would inflate construction cost which will, in turn, translate into more expensive properties for the man-on-the-street.

"Property prices will go up, there is no way around it. Higher cost of steel will cut into developers' profit margin, which means developers will have to increase property prices," Seing Liong told theedgeproperty.com.

He, however, did not specify how much higher property prices would go as a result of costlier construction materials.

Local steel prices have increased almost a third from RM1,900 a tonne to RM2,500 since January this year against the landscape of costlier iron ore, the feedstock for steel production.

Iron ore rates have climbed following the move by the world's top-three iron ore producers -- Vale, Rio Tinto and BHP Billiton -- to migrate to a quarterly-pricing structure for their products instead of the fixed-rate yearly contract system earlier.

Prices of steel products had earlier climbed to some RM4,000 a tonne in the middle of 2008 amid record-high crude oil rates then.
For now, Malaysian steel prices are deemed the highest in the region, at an estimated 10% premium compared with those in neighbouring countries.

Rehda has also found an ally in the Master Builders Association Malaysia (MBAM). Member companies of both associations had last month indicated their intention to import steel from regional countries due to costlier products at home.

Malaysian steel producers had increased steel bar rates by 10% to RM2,200 two months earlier

MBAM president Datuk Ng Kee Leen said : "The cost of iron-ore [a major raw material in steel production] is on the rise and it has already started to affect steel prices globally. Plus housing demand is increasing in most parts of the world.

"But looking on the bright side, it's a sign that the economy is recovering," Kee Leen said.

Seing Liong claimed that steel prices in the country were higher than those around the region because the local steel industry was controlled by a few steel mills.

While the Malaysian steel fraternity has been liberalised to allow builders to use imported steel bars, the bulk of construction materials consumed by the local building industry is derived locally due to complexities of importing these materials.

This is because the overseas-produced items would have to be first evaluated to comply with Malaysian standards before they can enter the country, hence, extra time and money are spent to buy these items from abroad.

This is in contrast to the Mutual Recognition Agreement adopted by certain countries that recognise internationally approved steel bars and do not need to undergo further quality-control measures.

Some 90% of Malaysian developers obtain their steel supply from local mills while the rest import the construction material from regional countries like China, Singapore, Taiwan and Thailand.

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