Industry players brace for volatile material prices

This situation pushes the industry to implement cost optimisation measures to sustain profit margins

by AUFA MARDHIAH / pic by TMR FILE

PROPERTY and construction players expect the raw material and building prices will remain volatile for at least until the second half of 2022 (2H22), exacerbated with the Russia-Ukraine crisis that sees further rise in fuel prices.

This situation has pushed the industry to implement cost optimisation measures to sustain profit margins.

“We expect the material prices to remain volatile in the short term and taper off in 2H22 as global economies move towards the endemic phase and macroeconomic issues are resolved,” Kerjaya Prospek Group Bhd CEO and ED Tee Eng Tiong told The Malaysian Reserve (TMR) in an email reply.

“We also offset this risk by optimising our operational efficiency through value engineering, using the industrial building system as well as leverage on our strong cash position to negotiate with suppliers to obtain more favourable prices,” he said.

He noted that raw materials prices such as steel bar and concrete prices have increased in the range of 10% to 30% since the start of the year.

This situation, he said, will generally affect the property prices but there are many considerations that need to be taken into account when a developer prices its property.

Tee said it also depends on the discussion between the developers and the contractors.

Meanwhile, UEM Sunrise Bhd CEO Sufian Abdullah said prices of raw materials have been on the rise since the third quarter of 2020, where it has significantly increased the value of the company’s contracts by 10%-20%.

“The supply and demand for raw materials is a factor in their price increase. During the early stage of the Covid-19 pandemic, most producers reduced their production until last year, when their demands increased.

“Furthermore, the rise in oil prices has also impacted logistics costs, forcing parties within the supply chain to raise their prices to factor in risk and uncertainty, as well as the ongoing crisis between Russia and Ukraine since Russia is among the world’s top producers for the raw material (steel and aluminium),” he told TMR.

“We predict that it may take months before the raw material prices will stabilise once more.”

He said if the prices of building materials are still not stabilised, the firm expects higher costs from future tenders.

“They may be the risk factor to their costs to accommodate the major price fluctuations and this will eventually affect a company’s profitability and margins, which I believe is not unique to UEM Sunrise.

“Property developers will also need to explore other alternatives to achieve further cost optimisation to offset these additional costs to continue delivering quality products to their customers,” he added.

However, Sufian said the firm does not expect property prices to rise in the short term as homebuyers are sensitive to any price increases.

The Malaysian Iron and Steel Industry Federation together with the Malaysia Steel Association stated that rising raw material costs and the cost of doing business (such as utilities, transportation and etc) have a significant impact on steel prices.

“The trajectory of domestic steel prices tracks the international price trend. Hence, domestic steel bar manufacturers have no control over steel prices as domestic steel prices are subject to global supply and demand dynamics,” the associations said in a recent joint statement.

The statement was made in response to the Real Estate and Housing Developers Association’s report on the impact of rising building material prices. Persatuan Kontraktor Bumiputera Kelas F president Tukiman Radion said the government should take actions to tackle this matter immediately.

“If this price keeps on increasing every two weeks, of course the property prices in Malaysia will be higher than at the present moment. We don’t know until when will this situation prolong, hence, the government needs to take actions to tackle this matter,” he told TMR.

“If gas prices increase, naturally every industry will be affected not just in Malaysia but all over the world. I suggest that the government take measures about this issue. If the government did not take care of this situation, I think the price will keep on increasing every now and then,” he said.