COMMENTS FROM MASTER BUILDERS ASSOCIATION MALAYSIA (MBAM) AND REAL ESTATE & HOUSING DEVELOPERS ASSOCIATION (REHDA) ON STEEL BAR PRICE INCREASE

MBAM and REHDA are very concerned over the recent increase in purchase prices of steel bar. The world market increase in steel prices and increase in exports to Middle East countries has resulted in manufacturers diverting their output to export markets where billets fetch higher prices than the controlled price of steel bars. As a result, a large portion of steel had been allocated for export, resulting in shortage of steel in the domestic market and subsequent inflation of steel bars due to grey market activity.

Many contractors have been forced to procure steel bars from the grey market to keep up with construction schedules, at prices significantly more expensive (RM350 to RM450 above government control price). Such “additional costs” are often disguised as transport, administration, finance charges, handling and other expenses. This has had negative ramifications on contractors who are bound by contracts without provisions for price fluctuations who are facing higher production costs. This situation has been a recurring event over the years due to pressures from higher world prices.

MBAM and REHDA are concerned that such recurring shortages and price fluctuations would interrupt the construction schedules of projects and housing developments, causing delay and increasing the risk of project failures when costs cannot be contained. Furthermore, price increase in steel would directly impact the construction of affordable housing including low and medium housing.

President of MBAM, Mr Patrick Wong, said: “The Association regret this sudden increase which has affected the price of steel bars. This situation came as a shock as the price increase would undoubtedly affect the on-going projects undertaken by members. MBAM believes to remedy the current spike in steel bar pricing, the Government should consider allowing for free markets to decide the price of steel bars and ascertain if there is sufficient supply of steel in the market for local demand. There is the irony of imposing price control for steel bar when in actual fact the reality on the ground is that steel bar pricing is “uncontrollable”. In Singapore’s steel price is currently SGD720 per tonne, translating to roughly RM1600 per tonne. Locally, developers and contractors have to pay more than RM2000 per tonne because they need the materials urgently. The situation of the “gray market” pricing of steel bars has not abated for a very long time and MBAM has written press releases on the matter since 1995. Contractors are frustrated over this prolonged situation as they continue to suffer from losses or erosions of already thin margins in their projects because of this impasse. MBAM hopes the Government and MDTCA can resolve the steel bar issue so that builders can accelerate construction activity without further unnecessary delays. In view of the many projects to be awarded under the 9th Malaysia Plan (9MP) that are Government-linked, MBAM is concerned that increased costs would eventually be passed on to the government.”

President of REHDA, Mr Ng Seing Liong, said: “Since last week, REHDA had received numerous complaints from developers and contractors that steel bar pricing had increased RM350 to RM450 per metric tonne above the control price. We urge the Government to look into the matter and to ensure that supply is consistently sufficient for local demand. If artificial shortages are recurrent and damaging to the industry, the Government should consider uplifting control pricing and import controls in favour of a free market. This could be a better alternative for the industry.”

To curb hoarding, the Associations also urge MDTCA to regulate and enforce a transparent schedule of steel production to prevent manipulation of rolling schedules that create artificial shortages.

The Associations would like to propose for the government to undertake a thorough investigation on the need for control pricing for this raw material, as the effect of control pricing seems to be more counter-productive than protective of the industry. Furthermore, the Government and MDTCA should consider tightening their enforcement mechanism and to take deterrent action against market manipulators. A decision to allow prices to be determined by open market forces would be welcomed, and this is by uplifting the ceiling price and removing import controls.

The Associations hope that the Government would urgently look into the matter for the benefit of the industry, especially with the current rising costs of doing business.

Jointly released by:

MR PATRICK WONG President MBAM

MR NG SEING LIONG President REHDA

Dated: 8h March 2007