Construction Costs Bounce Up As Recession Bottoms Out
Acautious optimism prevails as the year ends in Thailand, with materials indexes in flux. As in the U.S., local construction industry analysts believe the Thai recession has reached bottom and that small price increases now surfacing are a positive sign.
Prices for steel bar in Thailand reversed an epic fall that started last year following a peak of nearly $1,200 per ton. Last summer, the price bottomed out at $400 per ton but now is rebounding to more than $500 per ton as 2009 closes. After nearly a year of free fall, “domestic prices are picking up,” says Vikrom Vajragupta, director of the Bangkok-based Iron and Steel Institute of Thailand. As the new year approaches, “demand for construction is going higher,” due in part to the end of the rainy season and an injection of government stimulus, he adds.
Manufacturers are stoking production on news that the building materials sector is reporting a 46% increase in net profits this year, including a 16% hike in the second quarter. This is prompting projections that steel consumption will rise 12% in 2010. Bangkok-based Siam City Cement Plc, Thailand’s second-largest cement producer, has upped production since fall as cement prices have steadied at about $85 per ton. It will add 900,000 tons to 2010 capacity, says Vice President Chantana Sukumanont.
But uncertainty clouds such optimism as the ghost of 1997’s market crash lingers in the memories of many Thai owners and developers. Even as rising prices hint at a turnaround, contractors, owners and banks “are taking a very cautious approach,” says William Lo, managing director in Bangkok for global real estate consultant Rider Hunt Levett and Bailey Ltd. “Overall, things are coming back, construction financing is up, and there is a hunger for jobs, but there are some real challenges to the markets,” he says.
Lo points to Thailand’s political unrest as a key factor in how construction costs behave in coming months. Two-year-long tensions between pro- and anti-government groups continue to boil over in the streets of Bangkok, he points out. The disruption to the Thai construction industry “can be disastrous depending on how unstable things get,” says Lo.
Also, as Thailand moves to clean up less-than-green industries, some worry about growing environmental activism. A September ruling by Thailand’s Supreme Administrative Court halted 65 major industrial and power construction projects, worth about $8 billion, under more stringent environmental laws. Many are still idle and mired in litigation, and there is concern that the year-end market resurgence could take a hit. “The cost of doing business in Thailand is definitely going up because of this ruling,” says Nandor von der Luehe, chairman of the Joint Foreign Chambers of Commerce. “It puts financing of these projects at risk.”
Still, analysts are optimistic on news of rising materials prices. Tata Steel Thailand Plc, the country’s largest steel producer, says prices for steel bars climbed from about 65¢ per kilogram to more than $1 this month, says Surachai Pramuancharoenket, analyst from Kim Eng Securities Plc, Bangkok. Cement producers expect demand to grow by 10% in the upcoming months, he adds.
