PETALING JAYA: AmBank Research is maintaining its underweight call on the building materials sector, as it sees no meaningful catalysts to support the sector.
In a sector update note, the research house said locally the sector continues to be weighed down by weak demand, citing the discrepancy between the news flow on the revival of mega projects, and in reality, the absence of sizeable new public infrastructure projects up for bidding, excess supply and policy risks.
“On the global front, China plans to raise steel production in 2020 despite slowing domestic demand. For aluminium, the steady consumption growth in China in 2020 will be more than met by the production growth.
“We may upgrade our underweight call on the sector to neutral/overweight if the government decides to pump-prime the economy with public projects in the event of external shocks such as an unexpected slump in the global economy,” it said, adding that it had no top stock picks for the sector.
As for the prices of materials, AmResearch is projecting an average steel bar price of RM2,000/tonne in 2020, revised down from RM2,100/tonne assumed previously.
Industry experts forecast steel surplus in China to rise to 196 million tonnes in 2020 from 174 million tonnes estimated in 2019 as production is projected to grow by 1–2% while consumption is projected to contract by 1.4%.
“China’s steel surplus normally ends up as exports to the rest of the world. The oversupply situation could ease in 2021 as China’s steel surplus is projected to reduce to 115 million tonnes on the back of a 10% drop in production and a further 2% decline in consumption,” it said.
Meanwhile, the average cement price is projected at RM195/tonne in 2020, revised up from RM190/tonne, while average aluminium prices are estimated at US$1,850/tonne next year against an average of about US$1,900/tonne over the last three years.
AmResearch said it expects a very gradual rise in cement prices as the supply tightens.
“With one less player in the sector following the takeover of Lafarge Malaysia by YTL Cement we believe the fight for market share will ease, paving the way for players to shut down underutilised plants to optimise operations,” it said.
However, in terms of cement consumption in Peninsular Malaysia, it is projecting a 3% decline to 14.6 million tonnes in 2020, from 15 million tonnes estimated in 2019, on subdued public infrastructure construction activities as the government tightens its belt, coupled with the still challenging property market.
Aluminium prices are still impacted by the prolonged trade tensions between the US and China, AmResearch noted, but consumption in China is growing, backed by the substitution of steel with aluminium in the production of motor vehicles and aircraft.
“Industry experts project aluminium consumption in China to rise by 7.8% to 38.7 million tonnes in 2020 which will be more than met by production projected to expand by 8–9% to 38.9– 39.2 million tonnes,” it added.
