Posted on 30 Jan 2020
Commodity prices have started to ease, exerting greater pressure on steel prices following concerns of a slowdown in China’s economy due to coronavirus.
As such, UOB Kay Hian does not discount the possibility of weaker local steel prices, should steel prices ease further in China, as Malaysia’s steel prices follow the trend of China’s.
“China’s construction sector, which typically restarts after the Lunar New Year break, is expected to be impacted should the coronavirus becomes an epidemic throughout the country.
“Commodity prices have started to ease in anticipation of sluggish demand.
“As of Jan 23, prices of hot rolled coil, cold roll coil and rebar in China has dropped 0.4%, 0.2% and 0.6% month-on-month (m-o-m) to 3,833 yuan, 4,407 yuan 3,942 yusn per tonne respectively, ” the research house said.
In Malaysia, local billet prices were reported at RM1,900 per tonne, representing a 2.7% m-o-m increase on January 17 while steel bar prices were at RM2,135 per tonne, up 11.5% m-o-m.
Meanwhile, the cement industry is expected to recover in 2020, in line with the easing price war.
Citing sources, UOB Kay Hian said the difference in bulk cement prices among companies was about RM45 per tonne as at end 2019.
In recent weeks, smaller cement companies have raised their bulk cement prices in order to close the price gap with the leading industry player.
The much anticipated first hike materialised in October after an industry consolidation when Malayan Cement (formerly Lafarge) was acquired by YTL Cement in May, followed by Tasek Corp proposing to be taken private.
The first bulk cement increase was 5% or RM10 per tonne, bringing cement ASP to RM210 per tonne.
Then in November, another bulk cement price hike took place, with prices raised by 12% or RM25 per tonne to RM235 per tonne.
In the near term, UOB Kay Hian expects firmer cement average selling prices post the YTL-Lafarge acquisition which led to significant cost savings in the second quarter of 2019.
“We are of the view that the industry is on track for a recovery in 2020 after the industry consolidation coupled with a gradual recovery in cement demand.
“Key industry players are expecting bulk cement prices to hover around RM250 per tonne in 2020 versus our conservative estimate of RM245 per tonne.
“In addition, cement demand is expected to grow 5% year-on-year (y-o-y), in 2020 driven by the gradual commencement of mega and infrastructure projects, particularly the East Coast Rail Link (ECRL), ” said UOB KayHian.
Over in Sarawak, bulk cement prices are expected to stay at RM370 per tonne, with cement demand expected to grow at a modest rate in 2020 at 1% to 2% y-o-y, driven by mega and infrastructure projects in the state.
However, construction materials will see stronger y-o-y growth in 2020, particularly on the back of construction of Pan Borneo Highway, Second Trunk Road and the Coastal Road Network.
Source:The Star Online
