PETALING JAYA: Despite the anticipated price volatility for construction materials due to potential tariffs by the incoming US administration, the general outlook for building materials remains positive.
This is premised on the expected increase in demand, drive by higher government infrastructure spending in Malaysia as well as the stimulus measures by China.
These factors led CIMB Research to maintain its “overweight” rating on the building materials sector.
In its report, the research house acknowledged that while tariff issues would dominate the outlook for the building materials sector in 2025, favourable demand dynamics and supportive policy measures would underpin the sector’s growth potential.
“Although the incoming US administration’s tariff policies could induce greater price volatility for construction materials in the near term, we expect the phased ramp-up in government infrastructure spending to drive higher demand for key inputs such as cement and steel in the coming months,” it explained.
“Moreover, additional stimulus from China would help put a floor on building material prices,” it added.
CIMB Research retained Malayan Cement Bhd
(MCement) and Ann Joo Resources Bhd as its top picks for exposure to the sector.
On the steel segment, the research house noted that the outlook remained challenging amid rising costs and global uncertainties.
It pointed out that the Malaysian Iron and Steel Association has warned of increased operating expenses due to the proposed carbon tax, the multi-tier levy system and mandatory Employees Provident Fund contributions for foreign workers under Budget 2025.
In addition, cheap steel imports continued to undercut domestic prices, while tariff uncertainties under the incoming US administration would drive market volatility.
However, barring a full-blown trade war, CIMB Research said additional US steel tariffs are unlikely, noting, “The threat of additional steel tariffs appears remote for now”, as China steel already faces cumulative import duties of 50% under the Biden administration.
Further, the research house said, there are mitigating circumstances that could support the domestic steel industry.
“First, we anticipate that local steel prices could fluctuate in the near term, before normalising in 2025 as steel millers pass on the incremental costs to end-clients,” it said.
“Second, to level the playing field, Malaysia’s steel imports will likely be subject to the aforementioned proposed carbon tax, with proceeds to be channelled towards the country’s green transition fund.
“Third, and most significantly, there are growing signs that China could unveil fresh stimulus in 2025 that will help reverse the proliferation of cheap steel imports currently weighing on regional steel prices,” it added.
On aluminium, CIMB Research said the segment would likely receive a short-term boost from the removal of Chinese export rebates.
“Aluminium prices have jumped as much as 6% on the London Market Exchange after the Chinese government announced on Nov 15 the removal of a 13% rebate on value-added tax for aluminium exports effective Dec 1.
“We opine that the positive price impact was in anticipation of a potential five-million-tonne decline in Chinese aluminium products in the international market,” it said.
“Although a reduction in Chinese export volumes is likely to provide a significant boost to aluminium prices, we flag that supply may creep up again once Chinese exporters adjust to the new cost structure, much like what happened to its galvanised steel exports after tax rebates for plates and sheets were removed in 2020,” it added.
Meanwhile, CIMB Research noted that of late, a number of building materials players have either expanded vertically, or ventured into downstream business activities.
For instance, on June 20 this year, the PT Lumintu-Ann Joo Consortium secured a RM298mil contract to undertake electrification-related services for the East Coast Rail Link (ECRL).
“The ECRL contract came as a pleasant surprise, as it broadens Ann Joo’s existing role beyond that of a supplier of steel products to encompass the provision of electrification-related services as well.
“The strategic move will help Ann Joo diversify its earnings base, with a keen eye on Malaysia’s energy transition market, anchored by RM16bil in joint investments between Tenaga Nasional Bhd and UEM Lestari Bhd aimed at strengthening the national grid and decarbonising industrial areas,” CIMB Research said.
“We are also mildly positive on YTL Cement Bhd’s acquisition of Singapore-based Industrial Buildings System manufacturer NSL Ltd.
“It will create synergistic demand for MCement’s cement and pre-cast concrete products.
“The acquisition also creates new channels for MCement to support parent YTL Cement’s expansion into IBS through the supply of cement-related products via its Pasir Gudang plant in Johor, including to the Singaporean market, which accounted for about 5% of YTL Cement’s revenue over the past two fiscal years,” it added.
