Wednesday, July 30, 2008

Builders: Give 6 months lead time before raising prices

Published: 2008/07/
BT

The proposed price hike by Lafarge Malayan Cement from August 1 has trapped contractors in a cycle of continuous price increase, says the Master Builders Association Malaysia
MASTER Builders Association Malaysia (MBAM) has voiced its unhappiness over the proposed increase in cement prices by Lafarge Malayan Cement Sdn Bhd, saying it will hurt the construction industry badly.The price increase will take effect on August 1.MBAM president Ng Kee Leen said that cement manufacturers should consider providing the industry with at least six months lead time to allow contractors to allocate provisions to mitigate their cost."This announcement has trapped contractors in a cycle of continuous price increase," he said in a statement released in Kuala Lumpur yesterday.

Ng pointed out that it will be yet another increase in just two months, after the government lifted the ceiling price of cement on June 5.Cement prices rose 22 per cent from the RM10.90 under government price control to RM13.20 immediately after liberalisation.Lafarge's proposed increase will add another RM1 per 50kg to RM14.25, or 30 per cent."As it is, contractors are facing difficulties in controlling the cost of projects and committing to timely delivery. The cement price increase will add more pressure to cash-flow problems," Ng said."MBAM would like to caution that many small- and medium-sized contractors from Classes D, E and F may be forced to stop work, delay work, or even abandon projects as a result of the steep price increase of essential building materials, especially steel bars and cement."The government should take cognisance of this and act quickly."Ng said that although the cement liberalisation was announced last month, difficulties remained over its import because of logistics.He added that the scenario was the same for steel bars, of which prices had risen to an all-time high of RM4,100 a tonne.The liberalisation process of steel bars has not been well implemented, Ng said."It has been difficult to import steel bars into the country and there are still cases of Customs Department officers demanding approved permits and/or imposing import duty on certain steel bars."

MBAM will also ask that all items under HS Code 7214, all steel bars for construction use under Code 7214 and all steel bars for construction use under Codes MS 146 and BS 4449 be fully liberalised."If the situation continues to worsen, the government should step in and implement 15 per cent export tax on steel bars and billets, cement and clinkers, and ban exports of steel bars and clinkers to ensure building material manufacturers meet the needs of the local construction industry first."The 10 per cent import tax on cement should be waived as well because contractors and developers are already facing great pricing pressure, and any form of import tax relief will be appreciated,"

Saturday, July 26, 2008

Oil prices drop to 124 dollars in New York


Oil prices drop to 124 dollars in New York

LONDON (AFP) — Oil prices headed south again on Friday , cutting short a brief rally amid a drop in fuel demand across the United States, the world's biggest consumer of energy.

Crude futures had risen earlier Friday and on Thursday in what traders described as a technical rebound following two days of heavy falls.

New York's main contract, light sweet crude for September delivery, shed 1.49 dollars to 124 dollars a barrel in pit trading.

Brent North Sea crude for September dropped 1.41 dollars to 125.02 dollars in electronic deals.

Ken Hasegawa, manager of the energy desk at Newedge brokerage, cited by Dow Jones Newswires, said on Friday that the market would trade in a short-term range of 123-128 dollars.

On Wednesday, crude futures had tumbled by about four dollars after a bigger-than-expected increase in US gasoline (petrol) reserves signalled weaker demand in the United States.

At the same time, concerns eased over Hurricane Dolly in the Gulf of Mexico as the storm tracked away from oil installations there.

Oil prices have shot to a series of record highs this year, partly because of political tensions involving oil-producing nations like Iran, which refuses demands from major powers to halt its disputed nuclear programme.

However prices have tumbled since striking record heights of above 147 dollars on July 11.

Analysts said the US government's latest weekly snapshot on energy inventories had suggested weaker demand for energy.

US gasoline stockpiles rose 2.9 million barrels in the week ending July 18, far outstripping analysts' consensus forecasts for a gain of 200,000 barrels.

Gasoline consumption was also 2.4 percent lower compared to a year earlier as drivers faced sky-high pump prices of 4.11 dollars a gallon (3.78 litres) during a period when US demand for motor fuel is traditionally at a peak.

"The slide in crude (futures from recent highs) has been primarily driven by concerns of weaker demand as a result of higher prices, as economic problems persist," said Michael Davies at the Sucden brokerage in London.

"Originally these fears focused on the US, with data there showing significantly lower demand for gasoline, but economic data has started to point to problems in Europe and slower growth in the key drivers of oil demand growth; China and India."

Thursday, July 24, 2008

Inflation hits 26-year high on costlier petrol, diesel

Inflation hits 26-year high on costlier petrol, diesel
By Rupa Damodaran
BTimes
Published: 2008/07/24

MALAYSIA'S inflation level followed regional trends in June, with the Consumer Price Index (CPI) recording a 7.7 per cent hike as a result of the petrol and diesel price adjustments during the month.The CPI soared to a 26-year high in June with the index reading 113.4 from 105.3, beating market expectations and a Business Times poll which had expected 6.74 per cent year-on-year growth.The Statistics Department said the CPI for the first half of the year increased by 3.7 per cent compared to the same period last year.The index for food and non-alcoholic beverages for June increased 10 per cent, while the index for non-food rose by 6.7 per cent.
Between January and June this year, the index for food grew by 6.1 per cent compared to non-food which grew by 2.6 per cent.Bank Islam Malaysia senior economist Azrul Azwar Ahmad Tajudin said going forward, the CPI may stay above the seven per cent year-on-year level until the first half of 2009 before trending downwards to around three per cent and below if there are no more revisions in fuel price and electricity tariffs.However, he expects a 50-50 chance of a raise in the key benchmark interest rate from 3.50 per cent as Bank Negara Malaysia may want to ascertain the knock-on effects of the review in retail fuel prices. "Should Bank Negara stand pat in its monetary policy meeting tomorrow, I expect it to commence its mild monetary tightening cycle, just to send signals to markets that it is not behind the curve in the combat against inflation."HSBC Bank economist Robert Prior Wandesforde said the headline rate must now have reached a level that the central bank simply cannot ignore, fearing second-round effects on inflationary expectations. He said the main contribution to the June CPI came from the jump in transport price inflation (from 0.9 per cent to 19.6 per cent), which added 2.9 per cent points to the headline rate. The big jump in food price inflation from 8.2 per cent to 10 per cent accelerated the growth as the component suggests that the country's food subsidies can only go some way to disguising the jump in international food commodity prices. "Food prices will also have been impacted by the strength of energy as well as demand-pull factors, bearing in mind that real consumer spending in Malaysia has been growing at a double-digit for four quarters now," he added.

Tuesday, July 22, 2008

Another RM1bil double-track job for Ingress?

Monday July 14, 2008
Another RM1bil double-track job for Ingress?
By YEOW POOI LING

INGRESS Corp Bhd is tipped to have secured another RM1bil worth of contract to supply signalling and communication systems for the Ipoh-Padang Besar double-tracking railway project.An industry source said the contract would be awarded to a joint-venture company between Ingress and Italy-based Ansaldo Group. Ingress's 49% associate, Balfour Beatty Rail Sdn Bhd, via a joint venture with Ansaldo's Malaysian unit – Ansaldo STS Malaysia Sdn Bhd – recently secured an RM1bil contract for the electrification part of the double-tracking project.Ansaldo, which is listed on the Milan stock exchange, has a reputable record in the provision of traffic management, planning, train control and signalling systems and services.

“Electrification works start first before signalling and communication systems are set up,” the source said. Having both contracts would encourage sharing of resources and creating more efficiency and cost savings, thus giving better margins for the group, the source added.

Ingress group chief executive officer Datuk Rameli Musa, when contacted, declined to comment on the matter. However, he said, the company was interested in bidding for the electrification portion of the Seremban-Gemas double-tracking project, which was estimated to worth between RM400mil and RM500mil.

Ircon International Ltd, which is the main contractor, has yet to open the tender for that part.
Meanwhile, Ingress' power engineering railway (PER) division would remain profitable in the next two years, buoyed by demand for electric rail in the country as well as in the region.
“With oil prices rising and environmental issues cropping up, there will be demand for cleaner form of transportation,” Rameli said.The group would also leverage on its partner Balfour Beatty's expertise and global network to expand regionally.“We've been invited to view some rail electrification projects in Mumbai, India and Saudi Arabia,” he said.

Contractors brace for more price hikes

Friday July 11, 2008
Contractors brace for more price hikes
By JOSEPH CHIN The STAR

Building materials prices expected to rise 5%-10%
PETALING JAYA: Contractors, who have seen building material costs surge by an average 25% since January, are bracing for another round of price hikes, this time from the higher electricity tariffs which came into effect on July 1.

Master Builders Association of Malaysia (MBAM) secretary-general Yap Yoke Keong expected prices of building materials, including steel bars, cement and roof tiles, to rise by 5% to 10%. “It is a very critical stage for contractors,” he told StarBiz.

Contractors were already reeling from cost pressures in the form of spiralling building material prices and the knock-on effects of steep fuel price, he said, adding that the higher tariffs would put additional pressure on them.
Electricity tariffs rose by up to 18% for households and an average 26% for some commercial and industry users with effect from this month. Bank Negara expects the consumer price index to exceed 6% in June, following the adjustment in petrol prices by 40.6% and diesel prices by 63.3%.

Yap said some contractors had asked property developers to consider varying their contracts to allow for fluctuations in prices.”At the moment, there are a lot of discussions with developers and contractors, as such variations are not in the contracts. If the developers engage new contractors, they would also have to factor in the higher material prices,” he said.
Meanwhile, the Malay Contractors Association Malaysia is more pessimistic. Its president Datuk Roslan Awang Chik expects escalating prices to force some its 7,500 members, who mainly handle Government contracts, to close shop by the year-end. Recently, 200 contractors nationwide returned letters of award for projects to the Government. Most of them did not want to proceed with the contracts while others were slowing down or asking for mutual termination, he said.

“Contractors are finding it difficult to fulfil the terms of the contracts due to escalating prices. They have asked for variation order of prices from the Government. The average variation would be 25% to 30% of the original contract sum,” Roslan told StarBiz.

The Government had increased the allocation for the Ninth Malaysia Plan by RM30bil to RM230bil, partly due to more expensive building materials and also to finance additional developmental objectives.At end-200 7, about RM70bil had already been spent, leaving RM160bil for fiscal pump-priming from 2008 to 2010, or an average RM53.33bil a year.

RAM Ratings expects the construction industry’s growth prospects and profit margins for the remainder of 2008 and 2009 “to remain challenged” due to cost pressures from surging prices of building materials and higher fuel costs. “As building materials account for some 40% to 50% of their total costs, construction players with less leveraged balance sheets and more diversified businesses are expected to be able to better withstand the near-term cost pressures,” it said.
Larger construction companies with established track records in foreign countries would have a better chance of securing new projects abroad, despite intense competition and various operational and macro-economic risks, the ratings agency said.

CIMB Equities Research downgraded the construction sector from “neutral” to “underweight” as the continued rise in raw material costs would squeeze contractors’ margins and might lead to delays and even abandonment of construction projects. “Margins could face further compression from a potential move away from direct negotiated contracts to more open tenders. This scenario could be exacerbated by higher transport costs stemming from the fuel and electricity tariff increase,” it said. It also said share prices of construction stocks should remain depressed in the absence of any major upward re-rating catalysts even though the stocks in its coverage had fallen by 27% on average since the general election.
It said share prices were likely to remain depressed. Sentiment aside, the likelihood of margin compression filtering through more swiftly and intensely than expected was also a concern, coupled with further price escalation for steel and cement, which should stay on an upward trend as long as growth in steel consumption was supported by Brazil, Russia, India and China.

AmResearch Sdn Bhd expects more earnings downgrades by the market in the coming quarters, as margin concerns would continue to increase due to a step-up in raw material and energy costs. “Prices of steel surged 45% in six months whilst the liberalisation of cement prices (up 17% since early June) would put further pressure on construction costs,” it said. However, it is positive on companies like WCT Bhd and Zelan Bhd, but less enthusiastic about IJM Corp Bhd and Gamuda Bhd. AmResearch raised the net profit forecast for WCT for the financial year ending Dec 31, 2008 (FY08) by 5% to RM202mil to factor in an additional RM800mil worth of works for the Abu Dhabi Formula One project. However, it trimmed the net profit for FY09 and FY10 by 6%-7% to RM260mil and RM283mil respectively on a one to two percentage points cut in construction margins to reflect rising input and fuel costs and lower new contract assumptions of RM1.5bil for 2009 compared with RM2.5bil previously.

On Zelan, AmResearch said that 58% to 92% of the company’s construction earnings for the financial years ending March 31, 2009 (FY09) to FY11 were based on locked-in contracts.
It added that 93% of Zelan’s outstanding order book of RM3.9bil were derived from overseas contracts. Of this, 65% consisted of higher value engineering, procurement and construction (EPC) power plant and water desalination jobs.

“This insulates Zelan against any slowdown in domestic infrastructure spending,” it said, adding that Zelan was on track to transform itself into a global EPC player, after delivering RM3bil worth of power plant jobs in India, Indonesia and the Middle East in just three years.

Tuesday, July 8, 2008

Sukimi to build RM300m oil terminal in Kelantan

By Sulaiman Jaafar
Published: 2008/07/08
BTimes

INTEGRATED petroleum company the Sukimi Group of Companies (Sukimi) will build Kelantan's first independent oil terminal at Pantai Senok in Bachok at a cost of about RM300 million.Construction of the terminal, which can accommodate 12 million litres of fuel at a single time, is expected to take off early next year and will be fully operational by 2010.Sukimi president Datuk Ahmad Sukimi Ibrahim said a memorandum of understanding for the project would be signed by the company and state-owned Perba-danan Menteri Besar Kelantan Bhd next week.Founded in 1997, the group which has its headquarters in Kota Baru, is involved in oil and gas exploration and production, oil refining, marketing of petroleum products, trading, petrochemical manufacturing and logistics and marine, among others.

Ahmad Sukimi said group turnover for last year was RM300 million and expected to go up to RM500 million this year and more than RM1 billion next year."Besides generating the local economy, the oil terminal will turn Kelantan into a hub for petroleum distribution in the east coast and southern Thailand."Multinational petroleum companies like ExxonMobil, Shell and Caltex have also agreed in principle to use our facilities for the distribution of their products in Kelantan," he told a press conference yesterday.Ahmad Sukimi said the first phase, covering about eight hectares, involved the construction of a jetty, storage tank and distribution pipes which is expected to cost about RM50 million.The second phase costing RM250 million involved a refinery and facilities for multi-national companies.

He said the land for the entire project was on a 800 hectare site previously allocated by the state government for a joint venture between state subsidiary KelOil Sdn Bhd and KUB Bhd which failed to take off. "We are confident that we will be able to carry out the project as the funds are all ready. We expect to start the land acquisition by August followed by groundworks before it starts early next year," he said.Ahmad Sukimi said it was expected to employ about 2,000 people once the whole project was completed.

Monday, July 7, 2008

KDEB expected to bid for Selangor water ops

By Francis Fernandez
Published: 2008/07/07
BTimes

KUMPULAN Darul Ehsan Bhd, Selangor's investment arm, will make an offer this month to take over the entire water operations in the state, after the federal government's assurances that it will help fund a buyout plan, a top official of the state said yesterday.Speaking on condition of anonymity, the official said the exercise could cost as much as RM6 billion, almost half of what was speculated by the market.KDEB president Datuk Abd Karim Munisar in a statement said: "We have been notified that the federal government has set up a funding mechanism through Pengurusan Aset Air Bhd (PAAB) to take over the assets and liabilities ... and will be responsible for the funding of any future capital expenditures."He added that KDEB is examining various funding options with an aim to end monopolisation of water tariffs by the privately-owned water concessionaires by September.

Business Times was told that Abd Karim was instrumental in securing the backing, which culminated with an in-depth briefing to Deputy Prime Minister Datuk Seri Najib Tun Razak early last month."Abd Karim's central contention was the consolidation must take place this year, before the one third increase in Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) water tariff come into play, as it, would spike up valuations, and lead to an increase in water tariffs to consumers," said the official, adding if the deadline is met, there is unlikely to be a rise in water rates next year. Puncak Niaga Holdings Bhd owns 70 per cent of Syabas, which oversees the water supply service and distribution for Selangor, Wilayah Persekutuan Kuala Lumpur and Putrajaya, while Gamuda has a 60 per cent stake in Syarikat Pengeluar Selangor Holdings Bhd (Splash), the concessionaire for the Sungai Selangor Water Supply Scheme Phases 1 and 3.Gamuda's stake has been valued by the research community at about RM1 billion, while KDEB is still mulling two alternatives on Syabas, as Puncak Niaga has been difficult to convince, reportedly offering alternatives, centered on it leading the consolidation exercise.Business Times understands that KDEB is looking to revisit a February representation to buy Puncak's stake in Syabas, or to make an unsolicited offer at not more than RM3.50 a share to the shareholders of Puncak Niaga to take the company private.

AmanahRaya-JMF appoints managing director

Published: 2008/07/07
BTimes

AMANAHRAYA-JMF Asset Management has appointed Sharizad Jumaat managing director.Sharizad joined the company as chief executive officer in 2004.After the merger with JMF Asset Management, she was appointed executive director and chief investment officer.Sharizad has over 18 years experience in fund management, in particular fixed income and equities.

She started her career at Permodalan Nasional Bhd as a research analyst, later joining the Employees Provident Fund where she served in various capacities.

Thursday, July 3, 2008

Builders face 20pc rise in costs

Builders face 20pc rise in costs

Published: 2008/07/03

Tenders submitted this year show contractors expect steel prices to jump by as much as 50 per cent to RM4,800, says Malaysia's largest surveyor

MALAYSIAN builders face a record 20 per cent increase in costs this year, which may prompt some of them to scrap projects, the nation’s largest surveyor said.Average building costs rose 11 per cent in the first six months, with steel making up bulk of the increase, Loo Ming Chee, director of Davis Langdon & Seah (M) Sdn Bhd, said in an interview in Kuala Lumpur yesterday. Costs rose 12 per cent last year.The increase is “unprecedented,” Loo said. “I’ve never seen anything like it in my 20 to 25 years of experience.”Malaysian Prime Minister Datuk Seri Abdullah Ahmad Badawi in the past two months scrapped price controls on steel and cement and raised gasoline and power prices as record crude oil costs forced the government to cut subsidies.

Tenders submitted this year show contractors expect steel prices to jump by as much as 50 per cent to RM4,800 (US$1,470) a ton from RM3,200, Loo said.

The government last month shelved at least US$1.1 billion in public works projects as soaring commodity prices forced it to spend more on food security.UEM Group, the main contractor of a second bridge to the Malaysian island of Penang, said its costs may climb to more than RM5 billion (US$1.5 billion) from an estimated RM3.36 billion on higher raw material prices, Business Times reported today, citing the UEM managing director Ahmad Pardas Senin.

Slowing GrowthMalaysia’s central bank Governor Tan Sri Dr Zeti Akhtar Aziz said on June 29 soaring food and energy prices may hurt household spending and damp economic growth, slowing expansion in 2008 to below its March forecast.The economy may grow between 4.5 per cent and 5 per cent this year, she said, citing “preliminary” estimates. The central bank in March forecast expansion of 5 per cent to 6 per cent.The measures put many building contractors with no cost escalation clauses in their tender contracts in a bind, forcing them to pull out from projects, he said.“Contractors are not taking the risk anymore” and would rather forfeit their 5 per cent performance bond in their contracts, said Loo. “Everyone has to face the reality” of higher costs.Developers will also have little room to pass on the higher costs to consumers because rising food cost and inflationary pressures are eroding their incomes, Lee said.Developers are “facing an economy with tightening disposable income and the possibility of an economic slump,” Davis Langdon said in its July quarterly newsletter. The “sector is now stuck in a proverbial no-man’s land.”
- Bloomberg

2nd Penang bridge's cost may breach RM5b

2nd Penang bridge's cost may breach RM5b
By Marina Emmanuel
Published: 2008/07/03
BTimes

The total cost has escalated to RM4.59 billion from RM3.6 billion, says UEM Group, adding that it can pass on extra costs if the prices of raw materials go up further

UEM Group Bhd, the main contractor of the second Penang bridge, says the total cost of the project is now RM4.59 billion, but it can even breach RM5 billion if prices of raw materials rise further."The costs of these items can only be determined as and when we procure them," managing director Datuk Ahmad Pardas Senin told reporters during a site visit at Batu Kawan on mainland Penang.The bulk of the cost, or RM3.32 billion, is for the portion of the bridge over water, followed by RM997 million for the portion over land . Another RM285 million (6.2%) is for the design, concept and preliminary works that was agreed with the government.However, UEM can pass on additional costs if the price of materials like steel, is higher.

"I believe that without the fluctuation clause (in an agreement signed between UEM and the government), no organisation will be willing to start any construction because you will definitely be running at a loss," said Ahmad Pardas."I would also like to clarify that the original costing for the whole project is RM3.6 billion and not RM2.7 billion as reported by some media previously."The RM2.7 billion was actually referred to the cost of building the 17km-bridge span over water. As the construction of a bridge would also include those built on land, another RM900 million should also be included in the original costing as it was allocated to build expressways, interchange and toll plazas," Ahmad Pardas added.

The 24km second Penang bridge (of which 17km will be on water) will link Penang Island and Seberang Prai.UEM Construction Sdn Bhd, a subsidiary of UEM Builders Bhd, has named port builder and bridge construction firm China Harbour Engineering Co Ltd as its main contractor.UEM Group now holds the concession for the first Penang bridge. Under that agreement, UEM could seek compensation if a second bridge was built.However, Ahmad Pardas declined to say what UEM is planning to do, saying there are many ways to deal with the issue.UEM Group also yesterday indicated its intention to tender for the concession rights of the second bridge."The company has the experience and knowledge as its is currently managing two important crossings which are the Penang Bridge and the Malaysia-Singapore Second Link."All these will definitely help justify why UEM Group should be the most suitable party ...," Ahmad Pardas said.Meanwhile, UEM is set to buy 112ha of land in Batu Kawan and Batu Maung for the project. It is expected to pay a total of RM57 million in compensation to affected parties which include private land owners and Penang Development Corp.

About Me

A seeker of success (whatever that means) treading on a path, searching, to return to the wholesomeness that was him when he was launched into this big school called Earth.