EVERYONE wants the local shortage of steel bars ironed out as soon as possible. One of the parties most concerned are the contractors.
But while they empathise with the steel millers' dilemma of producing steel bars at what may amount to losses given higher scrap metal prices, getting adequate supplies is still foremost to them if they are to avert work stoppages.
The government should ensure there's adequate supply of steel bars to meet local demand, Master Builders Association of Malaysia (MBAM) president Lau Mun Cheong stated emphatically.
In fact, Lau thinks that pending the settlement of a new ceiling price - if any - the government should throw the book at anyone flouting the law and selling steel bars at prices exceeding its controlled price.
Speaking after a meeting with officials of the Domestic Trade & Consumer Affairs Ministry on Friday, Lau said MBAM was of the view that steel millers could export steel bars at more lucrative prices, but only after they had met local market demand at existing ceiling prices.
Real Estate Housing Developers Association (Rehda) deputy president Ng Seing Liong thinks the government should halt the export of steel items immediately, and also check the steel stock in the country to see who is hoarding.
“These steps have to be taken for price controls to be effective, otherwise it makes a mockery of the system,” Ng maintained.
Lau maintains that since steel bar production figures haven't dropped, there shouldn't be a shortage.
The Domestic Trade & Consumer Affairs Ministry has requested the parties involved to submit their proposals to the ministry by Tuesday.
Lau is hopeful the issue will be resolved by next week after the MBAM meets with Ministry officials again on Wednesday.
To Ken Holdings Bhd managing director Kenny Tan, the current situation is untenable.
“All in all, I have more than 2,000 units of apartments on-going, and the project guy has just informed me we have to pay RM350 to RM400 per tonne extra over the control price – and at cash terms. The dealer said even then he had to apportion it out to good clients like us. It's unbelievable, isn't it?”
A purchasing manager of a construction company listed on the MSEB was also worried about the situation.
The company usually puts in a steel order of 200 tonnes per month on average, but has not had its (early) January order fulfilled yet, and is relying on its December stocks.
“In the past, the longest we had to wait for orders to be fulfilled is one week, and even then it had more to do with production schedules. I'm worried our projects could be hit with late delivery charges should there be delays,” said the manager.
Late delivery charges aside, contractors are also worried they will be saddled with additional construction costs as many contracts do not have price fluctuation clauses.
Tan of Ken Holdings said the company was currently working on a government resettlement project for squatters in Shah Alam. It is selling the low-cost houses at RM35,000 a unit (versus the normal low-cost price of RM42,000) and only making a thin margin of 8% net.
According to Tan, a condominium unit uses eight to 10 tonnes of steel bars and assuming it is priced at RM300,000, that will push per unit cost up by RM3,000, or about 1%.
The purchasing manager said prior to the last increase in steel prices in April last year, metal dealers sold scrap at higher than approved prices, but listed it under “handling and transportation charges.”
“What choice do we have but to pay? We have to pay if the project needs to move urgently, but hope the situation will improve,” she said, adding the increases were expected to impact greatly on the company's financials.
“We also have build-operate-transfer projects and don't have price variation clauses for those, so we will have to absorb the difference in price.”
Ultimately, some of this increase is likely to be passed on to the consumers.
MBAM's Lau said the construction sector uses 1.5 million tonnes of steel bars annually; with steel bar prices running to as high as RM1,900 per tonne, he thinks the construction sector could be saddled with an additional RM1.5bil bill over the next two years, a point, he thinks the steel boys have conveniently overlooked.
In the past when scrap metal prices fell, he said the steel mills had not passed on the advantage, but kept the higher profits to themselves.
While supplies are so tight locally, the 50% import duty on certain steel products, which includes steel bars, also makes it unviable to buy them from overseas.
In the interim, Lau said the delay in steel bar deliveries and slowdown in work at the construction sites was already having a flow-on effect on sales of other building materials.
In order to progress in the longer term, he thinks there should be a full review of the steel industry, which has been afforded protection by the government over the years.
“While it is a strategic industry, the construction sector is also important to the economy. We have been subsidising the steel millers for the past 30 years, but now they have left us high and dry.”