MBAM sees steel prices rising by end-year, early 2010

KUALA LUMPUR: The Master Builders Association Malaysia (MBAM) expects steel prices to increase to RM3,000 per tonne around year-end or the beginning of next year, said its chief operating officer Tony Lee.

Speaking to theedgeproperty.com, Lee said the association foresees pressure on demand increasing due to the kicking-in of the government’s pump-priming initiatives and stimulus packages.

Lee’s comments support findings in a research note issued by AmResearch Sdn Bhd, who expects up to RM62 billion worth of big-ticket projects likely to be rolled out over the next six to 12 months.

“Our discussions with various local steel millers reveal that domestic steel prices may reach RM3,000 per tonne by 2010 due to a resurgence in local steel demand amid potential supply squeeze,” said AmResearch in a note on Sept 28.

Maintaining an “overweight” rating on the steel sector with Ann Joo Resources Bhd as its top pick, the research house added the local steel industry saw cumulative quarterly losses reduced to RM99 million in 2QFY09 against RM429 million in 1QFY09.

“While domestic demand remains relatively muted, we take comfort that selling prices have stabilised around the RM2,000 per tonne to RM2,100 per tonne level,” it said.

“The recent round of price cuts in June lasted only two weeks, suggesting that the worse is over as demand/supply dynamics gradually improve,” it added.

Citing channel checks, AmResearch also said that locked-in orders for billet exports by Malaysian millers have surged to US$515 per tonne during the current quarter against its three-year low of US$343 per tonne in March 2008.

According to MBAM’s Lee, steel prices bottomed in 4Q FY08 when steel suppliers were operating at overcapacity as demand for the material shrank due to the slowdown in the export markets and global economy.

“Prices dropped to about RM1,800 per tonne; local suppliers were also trying to counter the effects of the liberalisation exercise by dropping their prices,” he said. “But as effects of the stimulus plan began to be felt in the middle of 2009, pressure on demand started building up.”

However, in the import of steel, Lee said the import market will take a while to settle down due to the implementation of the procedures on the liberalisation of the steel industry.

“There is a need for all parties including the Customs Department, the Construction Industry Development Board (CIDB) and steel makers to be in synch. At the beginning of the year it was chaos but we expect things to smoothen out by the time demand picks up (at the end of the year),” he added.