KUCHING: Analysts at AmInvestment Bank Bhd (AmInvestment Bank) downgraded its call on the building material sector to underweight from neutral due to sustained weakness in the sector.
According to the bank in a sector report, the sustained weakness is from the local cutback in public infrastructure spending and low consumer sentiment in the property sector that will have a direct knock-on effect on the demand and prices for steel and cement.
For steel, the bank does not foresee that the easing of steel production in will have any salient effects as consumption is expected to decline correspondingly.
“We project steel bar prices to average at RM2,380 per tonne in 2019, which is comparable to an average of RM2,400 per tonne estimated for 2018.
“Industry experts forecast steel production in China to ease by 2.8 per cent in 2019 and 2.2 per cent in 2020 stemming from the removal of highly-polluting and inefficient obsolete capacity from the system.
“However, this is not expected to push up the steel price as China’s steel consumption is projected to correspondingly fall by 2.0 per cent in 2019 and 2.3 per cent in 2020
on the back of a slowdown in its GDP growth,” guided the bank.
For cement, the bank expects average prices in West Malaysia to fall by almost 20 per cent from RM235 per tonne in 2018 to RM190 per tonne in 2019.
This is due to anticipation that cement consumption on West Malaysia will weaken by another 6 per cent to 15 million tonnes in 2019 as the local construction and property sectors both continue to cool down.
The cement market in East Malaysia however, is expected to remain stable due to a lack of competitors.
Outlook for aluminium does not look promising as it is expected that the demand-supply dynamics for aluminium will look even more fragile in the near-term as production in China who is the world’s largest producer and consumer of aluminium is still expected to outstrip demand for it.
“We forecast the average aluminium price to ease 5 per cent to US$1,900 per tonne from US$2,000 per tonne estimated for 2018. Industry experts project aluminium consumption in China to grow by a healthy 5 per cent to 38.3 million tonnes in 2019 from 36.5 million tonnes estimated for 2018, largely backed by the growing automotive and aircraft manufacturing industries.
“However, during the same period, aluminium production in China is anticipated to outstrip consumption, rising by a faster rate of 8 per cent to 40 million tonnes from 37 million tonnes estimated for 2018,” said the bank.
While the bank has downgraded the building materials sector for now, they have also stated that the rating on the sector may be upgraded in the future to neutral or overweight should the government sentiment on public infrastructure projects changes tune, or if China decides to expedite their removal of obsolete steel and aluminium producing capacity within the country.
Source: Borneo Post Online