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THE construction sector has never had it this bad in a long time. The cost of building materials has skyrocketed, which has put a serious strain on the profitability of construction firms.
It has been widely reported that steel prices have gone up due to the Russia-Ukraine war, as these two countries are among the largest steel producers in the world.
Other challenges include labour shortages and supply chain kinks which can lead to delays.
“Don’t be surprised if one of the highly profitable big boys of construction report a quarterly loss soon,” says an industry player.
The view is echoed by Tan Sri Sufri Mhd Zin, the president of the Master Builders Association Malaysia (MBAM).
“Spikes in building material prices in the last two years have impacted the construction sector. Contractors are suffering badly and a handful have dropped out of business,” he says.
In a statement, MBAM points out that the price of steel bars had risen by 30.6% from RM2,680 per tonne in February 2021 to RM3,500 per tonne in April 2022.
Meanwhile, bulk cement rose 40% from RM210 to RM350, and diesel saw a whopping 128.4% jump from RM1.90 to RM4.34 per litre in the same period.
Taking a hit: Workers at a construction site in Kuala Lumpur. The Master Builders Association Malaysia notes that rising prices are threatening the viability of construction projects from infrastructure to residential projects.
The association notes that rising prices are threatening the viability of construction projects from infrastructure to residential projects.
MIDF Research, in email replies to StarBizWeek, notes that there have been rises in building material prices, such as cement, almost every month since 2021.
“Conventional wisdom would suggest that such factors would compress the margins of construction players as building material costs usually take up 30% to 40% of project costs.
“But from what we have gathered, prices at current levels are still manageable as some construction companies are able to mitigate this impact with the completion of other projects and with recalibration of margins,” says the research house.
However, it adds that if the cost headwinds persist, the impact on bottom line performances are inevitable.
“Still, we remain comforted as Prime Minister Datuk Seri Ismail Sabri Yaakob has recently directed government agencies to intervene and control the rising prices and to expedite the implementation of development projects,” says MIDF Research.