BT: M'sian building sector set for 5.8% growth

Business Times - 03 Jan 2008

M'sian building sector set for 5.8% growth

Driving expansion are oil pipeline, rail, water, undersea power cable projects
(KUALA LUMPUR) Malaysia's construction sector is expected to grow for the second consecutive year by 5.8 per cent compared with 4.7 per cent last year, fuelled by stimulus measures outlined to boost domestic activities, says research company Inter-Pacific Research Sdn Bhd.

In its economic and market outlook report released here yesterday, the research house said the positive outlook will help boost investors' confidence by yielding the desired multiplier effect that will enable the domestic economy to withstand any adverse shocks arising from the external front.

The country's construction sector was in recession for three consecutive years from 2004.
Inter-Pacific said some of the high impact projects expected to contribute to the growth will be the Trans-Peninsular oil pipeline (RM25 billion or S$10.8 billion), double tracking rail projects (RM19 billion), Pahang-Selangor water transfer (RM9 billion) and the Bakun undersea cable and overhead transmission (RM9 billion) projects.

Following the slight decline in government development expenditure by 2.1 per cent to RM40 billion this year from RM40.9 billion last year, private finance initiative projects are also expected to play a more meaningful role this year.

However, Inter-Pacific said in its report that there was a disturbing trend in the utilisation of development expenditure. 'A total of RM200 billion has been allocated under the Ninth Malaysia Plan and only 29.1 per cent or RM58.2 billion has been utilised so far.

'For instance, the actual projection for development expenditure in 2007 is RM40.9 billion but only RM22.3 billion were utilised until third quarter.

'On an annualised basis, our estimates showed gross development expenditure would reach RM30 billion in 2007, a shortfall of RM10.9 billion. This trend is somewhat disturbing.'
Citing the importance of the current development of economic zones in the country where huge funds have been allocated, it said: 'If it persists, it raises our scepticism as to whether there will be another construction boom. The last time we experienced a boom was between 1994 and 1996 driven by buildings and transport-led projects. This time around, we expect growth to come from rail, water, oil and gas and regional developments. Hence, we hope for greater development expenditure in 2008.'

Meanwhile, the building materials industry is also expected to benefit from the improving construction activities, with cement and steel being the two sub-sectors to see significant gains.
'Whilst taking advantage of improving domestic construction/infrastructure activities, we expect pick up in property activities, strong demand from Singapore for their resorts built and a healthy export market (Middle East construction boom) to further lend support for higher demand of cement. We expect cement demand to grow by about 6 per cent per annum over 2008 and 2009,' Inter-Pacific said.

It said the stable cement price averaging RM215 per tonne coupled with better utilisation rate, should help to partly offset the rising operation costs from electricity, paper bags, fuel and raw materials.

Steel, meanwhile, is envisaged to exhibit better performance supported by domestic construction activities, higher selling prices, and stronger export market.

Steel prices are expected to remain firm in the near term, mainly supported by strong demand from the single largest consumer namely China, said Inter-Pacific.

The International Iron and Steel Institute has projected the global demand for steel this year to grow by 6.1 per cent, while demand from China, which consumes 35 per cent of the total world steel, is set to expand by an additional 10 per cent this year. - Bernama