Cost pressure easing for construction sector

MIDF Research maintained its “positive” stance on the construction sector, which is expected to benefit from increasing job flows in the country. — Bloomberg

PETALING JAYA: Cost pressure is seen easing for the construction sector in Malaysia, thanks to lower steel bar prices and the slower increase in cement prices.

MIDF Research maintained its “positive” stance on the construction sector, which is also expected to benefit from increasing job flows in the country.

“We maintain our ‘positive’ view on the construction sector as the current cost headwinds remain manageable with the softening steel bar prices and the slower increase in cement prices,” the brokerage said.

“We expect the sector to benefit from improving job flows driven by Budget 2023 and also development plans in Sarawak to improve connectivity in the state, which is vital to serve as a gateway to Nusantara when Indonesia moves its capital to Kalimantan,” it added.

MIDF Research said its top picks for the sector this year were the larger players and those with stellar balance sheets and order books, namely Gamuda Bhd, IJM Corp Bhd and Sunway Construction Group Bhd.

For cement play, being the direct beneficiary of the improving construction sector, it recommended Malayan Cement Bhd.

In its report yesterday, MIDF Research noted that the average prices of steel bars in Malaysia had softened for the second consecutive month, in line with the decline in the international prices of steel and iron ore, as expected when China authorities stepped in to curb the surge in iron ore prices in March 2023.

Based on the prices of five types of mild steel bars and four types of high tensile deformed bars tracked by the Statistics Department, the average price declined 0.53% month-on-month (m-o-m) in June 2023 to RM3,706.95 per tonne.

While cement prices had continued to rise, the pace of the monthly increase had slowed.

MIDF Research noted that the average price of the building material rose for the eighth consecutive month in June by 0.22% m-o-m – its slowest pace of monthly increase since December 2022, to RM22.87 per 50kg bag.

“This was on the back of higher selling prices and lower rebates offered due to higher raw materials cost,” it said.

It noted that the northern region of the Peninsula recorded the highest increase by 1.4% m-o-m to RM22.57 for every 50kg bag, while the central and eastern region rose 0.1% m-o-m and 0.4% m-o-m, respectively, to RM22.03 and RM22.49.

Cement prices remained unchanged in Sabah and Sarawak at RM23.12 per 50kg bag.