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Saturday, May 17, 2008

Material suppliers set to ride on strong demand

PETALING JAYA: Apart from construction players, it looks like building material suppliers stand to benefit from strong domestic demand now that at least two-thirds of Ninth Malaysia Plan (9MP) projects are going to be on track.

OSK Research analyst Ng Sem Guan said the steel industry was already performing well due to strong regional export demand and the recent removal of ceiling price control.

“(Having) 9MP projects come on stream would be an added bonus,'' he told StarBiz.

He added that since these companies supplied to the domestic market and did not incur additional transport and logistics costs, their profit margins could be enhanced.

Inter-Pacific Research, in its report, said steel players such as Ann Joo Resources Bhd would potentially benefit from the implementation of two large infrastructure projects – the second Penang bridge and Ipoh-Padang Besar double-tracking rail project.

“These projects are expected to consume more than 750,000 tonnes of steel bars valued at about RM1.2bil,” it said.

Recently, Works Minister Datuk Mohd Zin Mohamed said the ministry would instruct the Construction Industry Development Board to work with the Statistics Department to collect data on the current steel prices, which have risen by as much as 50% for some products.

The board was also asked to produce a list to act as a basis to calculate steel price changes by contractors.

The ministry also urged structural designers to use steel materials in the design of industrial building system (IBS) components.

IBS is an alternative building technique that uses products, components or building systems that involve the pre-fabrication and installation of building components at sites.

OSK Research analyst Lim Vi Ming said the ministry's moves bode well for the steel industry as higher raw materials prices could be passed on to consumers.

According to Lim, other construction-related players such as metal-forming and specialised glass manufacturer Ajiya Bhd are the likely beneficiaries of 9MP projects and could receive an earnings boost.

“This company (Ajiya) has good profit record as it has been successful in passing on mounting production costs to customers,” he added.

Another beneficiary is medium-density multi-purpose fibreboard manufacturer Evergreen Fibreboard Bhd.

According to Lim, tile manufacturers such as Yi-Lai Bhd and White Horse Bhd are mainly dependent on private projects and cater to retail demand, and hence may not enjoy the spill over effects from 9MP projects.

“The effects on the tiles industry may not be immediate as the installation of tiles would only be apparent at the end of each construction project.

“Therefore, the boost in sales can only be evident at the later part of the project,” Lim added.

By The Star (by Laalitha Hunt)

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