Singapore may be just in the nascent stage of the current construction boom but the strain on resources is becoming a concern even for suppliers.

TV Narendran, deputy president (operations) of NatSteel Asia, said: ‘In Singapore, the industry practice is to hold prices for seven to twelve months and this means that the steel supplier has to bear the risk of fluctuating input costs and market prices.’

So far, the steel price increases alone have not had much impact on property prices. ‘Steel accounts for about 5 per cent of the project costs. So even a 15-20 per cent increase in steel prices has an impact of less than one per cent on project cost,’ explained Mr Narendran.

Wee Piew, chief executive of mainboard-listed HG Metal Manufacturing, notes that price increases have been ‘more pronounced’ since the first half of this year. ‘Global demand is very strong, especially from the Middle East and Russia. Steel from Turkey and the Ukraine, which used to come here, is now being channelled to those markets.’

The supply of Chinese steel is also ‘much more controlled now’ due to a cut on export tax rebates, he added. With pressure on both demand and supply, prices are high. The price for deformed bars for construction has risen 35 per cent to US$540 per tonne since January, he said.

Even construction companies which are not directly affected by rising material prices are seeing a strain on resources.

Mainboard-listed Tat Hong Holdings’s share price has appreciated 75 per cent since the begining of the year on the back of the construction boom.

Tat Hong supplies construction machinery including cranes, and its CEO, Roland Ng, said: ‘We believe that rates will continue to be driven by strong demand conditions and tight supply for cranes in this region. We continue to observe a long lead time required for crane manufacturers to deliver on new orders and are not aware of any factors that will drastically alter the situation in the near future.’

Mainboard-listed Tiong Woon Corporation Holdings, a crane and transport services supplier, has also benefited from the boom and its share price has more than trebled since the start of the year.

And Tiong Woon executive director Tan Swee Khim expects crane rates to keep rising by 10 per cent year-on-year for the next two to three years at least.

‘Demand is not really coming from the intergrated resorts in particular, but across the industry, including private projects, infrastructure and refineries. The situation on the supply side is not likely to improve much.’

There is some uncertainty of how the construction boom will play out. An industry player said: ‘Given the limited pool of contractors, subcontractors and suppliers in the local market, it is not surprising that developers may not be able to secure tendering commitments from the larger established contractors who may already have ongoing projects and tendering commitments with existing clients.’

Source: The Business Times, 06 July 2007