08 November 2008

Govt jobs seen as major catalyst for construction.

The Star reported yesterday that the Malaysian Consumer Confidence Index was at its lowest since 2005, and the economy had just replaced inflation as the nation's biggest new-term concern. In fact, about 68% of the poll felt that Malaysia was in an economic recession.

The MBAM President, Mr Ng Kee Leen was reported today in The Star saying the local construction industry is expected to be stable at best next year with much depending on the implementation of government projects. The government projects will be seen as the major catalyst in boosting the industry, and in fact the total turnover for the sector was expected to be about RM 70 billion.

Mr Ng also mentioned that the cost of construction and building materials would drop to more sustainable levels if the price of crude oil maintains at its current levels. The domestic steel prices should range from RM1,900 to RM2,200 per tonne to be in line with the level in the region.

My take on this subject?

I think the construction industry would be slower than before. And at this crunch time, the contractors with the bigger order book and strong cash flow would benefit the most. However, with the implementation and mid term review of the 9th Malaysia Plan as well as the RM 7 billion stimulus package announced earlier this week, I think that the government expenditure on infrastructure will continue to push the industry.

Based on the current international trends, I believe that the prices will continue to drop to reflect international market prices. Adding to that, with the delay in property launches, the demand would've dropped substantially and hence prices should come down further. The prices should stabilize at the international market prices.

I believe the current crisis will be around at least for the next 3 years. This would mean consumers tightening their belts, delaying property launches and hence replenishment of order book would be tougher for the next 2 years. Based on our current order book of which most were secured this year, it'll last us well into 2011.


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