Shortage of steel to impact projects

By THE STAR

Steel features prominently in Malaysia’s efforts towards achieving a developed nation status by 2020. The Government’s focus on the real estate sector and the Ninth Malaysia Plan will raise the importance of the raw material to the economy.

THE steel shortage fiasco, which is once again making news headlines, is threatening to affect a broad spectrum of property and construction projects if a holistic long-term solution is not found.

Inadequate supply of steel and its price escalation have been a recurring problem over the years, more recently in 2003 to 2004 and previously in 1984, 1989 and 1991.

Steel is one of the strategic industries identified by the Government for price control. The metal is an important component that is necessary to achieve the country’s industrialisation aspirations.

(Besides steel, cement and fuel are also listed as strategic sectors in Malaysia.)

The rollout of the Ninth Malaysia Plan (9MP) projects from 2006 to 2010 and the buoyant property market will trigger a much greater need for steel.

Industry players said the Government’s new initiatives for the real estate sector, including the exemption of real property gains tax (RPGT) and the relaxation of the Foreign Investment Committee (FIC) ruling for foreign property buyers, would be negated by the sharp increase in the prices of steel bars and billets.

The steel industry is controlled by seven major millers, which have cited higher production cost to seek a review for the ceiling price of steel bars and billets.

On April 16, the Domestic Trade and Consumer Affairs Ministry raised the ceiling price for steel bars and billets by 20% from RM1,635 and RM1,389 a tonne respectively.

However, industry groups and trade associations claimed their members, despite paying the new ceiling price of RM1,962 a tonne, were still having difficulties sourcing for adequate supply of steel bars of certain sizes.

Members of the Real Estate and Housing Developers Association (Rehda), Master Builders Association of Malaysia (MBAM), Malaysian Malay Contractors Association, Malaysia Indian Contractors Association and the Associated Chinese Chambers of Commerce and Industry of Malaysia are eager to let market forces decide the price and supply of steel bars.

According to Rehda president Ng Seing Liong, the market needs two million tonnes of steel bars a year, which are way below the millers’ combined production capacity of 5 million tonnes. “Going by their production capacity and market demand, there should not be any steel shortage at all. The onus is on the enforcement officers to do spot checks to determine the actual production numbers coming out from the millers,” he added.

Ng said the higher steel prices had led to a 5% to 15% rise in the total construction cost of property projects, and this further squeezed the margins of industry players.

“If the Government does not want to de-control the price and import of steel bars and billets, every effort should be undertaken to ensure the supply is adequate and timely,” he said.

MBAM president Patrick Wong said that in view of the many projects to be awarded under the Ninth Malaysia Plan (9MP), major infrastructure projects could be affected if the situation was left as it was.

“A more reliable supply is necessary to ensure the smooth implementation of 9MP projects.

“Otherwise, smaller contractors may be even forced to close down, hampering the progress of many development projects,” Wong added.

Questioning the efficacy of the Government-controlled ceiling price, he said: “What is the point of having an official price control when the actual situation on the ground is uncontrollable?

“The industry is now in a crisis as steel millers continue to withhold supply until high delivery charges beyond the new ceiling price are paid.”

He said contractors and builders were facing great difficulties in obtaining steel bars unless they paid premiums of RM150 to RM250 per tonne above the latest Government-controlled ceiling price.

Wong said the recent 20% increase in the ceiling price of steel bars and billets was considered inadequate by steel millers which had asked for a 30% increase.

“They have created an artificial shortage in order to charge higher prices, often disguised as transportation, administration or handling charges.

“To keep up with construction schedules, local builders are being forced to pay more than RM2,000 a tonne for steel bars and we want a long-term solution to resolve this nagging problem,” Wong added.

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