Commodity Boom Slams Malaysia Builders Already Hurt by Covid

Malaysian builders struggling to avoid Covid infections at work-sites have another problem on their hands: surging prices of building materials thanks to the broad commodity boom.

Firms with no cost escalation clauses in their tender contracts are hurting, according to the Master Builders Association Malaysia, which represents more than 1,000 members. It’s now seeking help from the government to shield them from the risk of surging prices.

“Contractors who have previously locked in the building materials prices before this would feel the impact of the price increase now,” Sufri Hj Mhd Zin, president of the association, said in an email to Bloomberg. “The rise in materials costs is not good for the industry, be it manufacturers, suppliers, contractors, developers and the people.”

Cost pressures from a yearlong rally in commodities are being felt across the building and property industries in Malaysia, adding to hurdles faced by the government as it struggles to revive an economy pummeled by the worsening spread of the coronavirus.

The rising costs also comes as the government is looking to revive mega infrastructure projects and has set aside a record 69 billion ringgit ($17 billion) for development expenditure in its 2021 budget.

Commodity Boom Slams Malaysia Builders Already Hurt by Covid

The government said on Saturday it will shorten business working hours from Tuesday and cut public transport capacity to reduce movement, while high-risk places will also be shut immediately. New cases in Malaysia hit a record of almost 7,000 on Sunday.

A gauge of Malaysian builders has tumbled 9% this month, set for its steepest drop since January. Gamuda Bhd., the largest by market value, has slumped 12%. IJM Corp. has fallen 13% and Kerjaya Prospek Group Bhd. down 8.9%.

Builders have proposed to the government that a variation of price clause be included in projects to shield them from price surges in building materials, said Sufri. The Construction Industry Board is also recommending a similar clause for government projects, he added. CIDB declined to comment when contacted.

Steep Rise

Prices of 10 mm steel T-bars in Malaysia, one of the key materials used in the building industry, have jumped as much as 30% from September to more than 3,000 ringgit in March, according to data on the Master Builders Association’s website.

LFE Corp., which won a contract to help build an extension of a hospital in 2019, said Tuesday it would scrap it because it couldn’t finish the job due partly to the recent steep increase in construction material prices. The movement control order to contain the virus spread also caused severe delays, it added.

Some builders don’t think the surge in steel prices will continue for long. Also, China’s bid to rein in surging prices has spurred declines across its markets, with aluminum, steel and iron ore tumbling.

The price surge in steel is expected to last until year-end but it will balance out eventually, Kerjaya Prospek’s Executive Chairman Tee Eng Ho said. “I don’t think this price will be sustained,” he added.

©2021 Bloomberg L.P.

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