Builders cast wary eye on prices of building materials

KUALA LUMPUR: The abundance of 9MP and economic corridor projects will not distract the local construction industry players from casting a wary look on building material prices, partly due to the introduction this month of the hotly contested automated pricing mechanism (APM).

Industry observers are expecting steel and cement prices to spike in the wake of the APM, pinching the margins of construction players already burdened with rising fuel prices. Escalating building material prices will put a dent in margins of smaller players rather than the big boys, analysts said.

“On the ground, there is already word that prices will go up in January 2008. We hope the rumours on price increase are not true as any attempt to further increase the price of cement will definitely affect project costs.

“Inevitably, this will result in an upward revision of prices for new housing and property launches,” Real Estate and Housing Developers Association (Rehda) and Master Builders Associaton of Malaysia (MBAM) said in a joint statement recently.

“The supply of construction jobs is not a concern but we hope the pricing of raw materials can be resolved,” Putrajaya Perdana Bhd chief executive Wie Hock Kiong said.

“Smaller players will be affected, the bigger construction players are paying market prices,” said MBAM president Patrick Wong.

This rings true for players who have secured projects on an open tender basis that bring in lower margins. “Companies with a steady order book have more margins. Some of them are mitigating by variation of price clause in contracts,” Osk Research’s Kenny Goh said.

Unsurprisingly, steel and cement players have plenty to celebrate with burgeoning demand for these materials. Lafarge Malayan Cement Bhd, YTL Cement Bhd, Kinsteel Bhd and Ann Joo Resources Bhd will be the main beneficiaries, analysts said.

Also of concern is the shortage of manpower, particularly technically skilled staff in the construction sector, which is experiencing an outflow of local talent to the Middle East and other Asian countries, Wie said.

By The EDGE MALAYSIA (by Sharmila Ganapathy)