Commodity boom slams Malaysia builders already hurt by Covid-19

Kuala Lumpur

MALAYSIAN builders struggling to avoid Covid-19 infections at work-sites have another problem on their hands: surging prices of building materials thanks to the broad commodity boom.

Firms with no cost escalation clauses in their tender contracts are hurting, according to the Master Builders Association Malaysia, which represents more than a thousand members.

It is now seeking help from the government to shield them from the risk of surging prices.

"Contractors who have previously locked in the building materials prices before this would feel the impact of the price increase now," said Sufri Hj Mhd Zin, president of the association.

"The rise in materials costs is not good for the industry, be it manufacturers, suppliers, contractors, developers and the people."

Cost pressures from a year-long rally in commodities are being felt across the building and property industries in Malaysia, adding to hurdles faced by the government as it struggles to revive an economy pummelled by the worsening spread of the coronavirus.

The rising costs also comes as the government is looking to revive mega infrastructure projects and has set aside a record RM 69 billion (S$22 billion) for development expenditure in its 2021 budget.

The government said last Saturday that it will shorten business working hours from May 25 and cut public transport capacity to reduce movement, while high-risk places will also be shut immediately.

On Thursday, Malaysia reported a record number of new Covid-19 cases for the third straight day, with 7,857 infections. This takes the country's total so far to 541,224.

A gauge of Malaysian builders has tumbled 9 per cent this month, set for its steepest drop since January. Gamuda, the largest by market value, has slumped 12 per cent.

IJM Corp has fallen 13 per cent and Kerjaya Prospek Group is down 8.9 per cent.

Builders have proposed to the government that a variation of price clause be included in projects to shield them from price surges in building materials, said Mr Sufri.

The Construction Industry Board is also recommending a similar clause for government projects, he added.

Prices of 10mm steel T-bars in Malaysia, one of the key materials used in the building industry, have jumped as much as 30 per cent from September 2020 to more than 3,000 ringgit in March this year, according to data on the Master Builders Association's website.

LFE Corp, which won a contract to help build an extension of a hospital in 2019, said on Tuesday that it would scrap it because it could not finish the job due partly to the recent steep increase in construction material prices.

The movement control order to contain the virus spread also caused severe delays, it added.

Some builders do not think the surge in steel prices will continue for long.

Also, China's bid to rein in surging prices has spurred declines across its markets, with aluminium, steel and iron ore tumbling.

The price surge in steel is expected to last until year-end but it will balance out eventually, said Kerjaya Prospek's executive chairman Tee Eng Ho.

"I don't think this price will be sustained," he added. BLOOMBERG