Mixed outlook for building materials sector

PETALING JAYA: It is a mixed picture for the building materials sector following the recovery seen in the cement segment with more rational competition among the players after a major industry shakeout last year, according to AmInvestment Bank Research (AmResearch).

For aluminium, the research house does not expect a V-shaped recovery in prices, despite the gradual recovery in consuming industries due to the inventory build-up during the pandemic.

“Meanwhile, despite the weak demand, local steel prices will at least hold up as local producers export the excess supply,” it said in a report.

With that AmResearch has upgraded the sector to ‘neutral’ from ‘underweight’.

It elaborated that cement prices in Peninsular Malaysia are not expected to fall from RM250 a tonne in second-half 2020 despite weaker demand as a result of the Covid-19 pandemic’s impact on construction productivity, and tepid new infrastructure and job flows.

The research house attributed this to the emergence of a price leader after YTL Cement’s acquisition of Malayan Cement in 2019 and the easing of industry supply pressure with the recent shutdown on two clinker plants by Malayan Cement and CIMA which has put 8% of the industry clinker capacity offline.

With the subdued construction and infrastructure activity in the second half of this year, it projected a 30% decline to 10.5 million tonnes in cement consumption from 15 million tonnes estimated in 2019.

“We project cement consumption to improve by 30% to 13.7 million tonnes in 2021, assuming construction players are able to bring their productivity up back to close to pre-pandemic levels,” said AmResearch.

With aluminium, the research house projected a mild recovery in aluminium prices to US$1,600 a tonne in second-half 2020 (H2’20), vs US$1,528 a tonne in second-quarter 2020.

“We project aluminium prices to improve slightly to US$1,700/tonne in 2021F, assuming that rising demand from aluminum consuming industries (as their operations normalise) will gradually run down the aluminium inventory build-up,” it said.

As for steel, AmResearch expects prices to recover in the second half of the year as China’s construction activity starts to pick up after the rainy reason, local supply pressure remains manageable, as well as a recovery in domestic construction activities.

It also expects iron ore prices to ease in H2’20 after Vale’s iron ore mine in Brazil reopened.

“Nonetheless, based on our forecast of an average steel bar price of RM2,100/tonne in FY20 revised up from RM1,860 we assumed previously, we expect local steel players to remain loss making,” said the research house.

source https://www.thesundaily.my/business/mixed-outlook-for-building-materials-sector-DK2815234