KUALA LUMPUR (Dec 10): AmInvestment Bank Research has maintained its "underweight" call on the building material sector and said the sector continues to be weighed down by weak demand.

In a note today, AmInvestment noted that it will upgrade its call on the sector 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.

On the local front, the sector continues to be dragged down by weak demand, excess supply and policy risks.

The research house said that globally, 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," it said.

The research house projected an average steel bar price of RM2,000 per tonne in 2020F, down from its previous assumption of RM2,100 per tonne.

It said industry experts forecast steel surplus in China to rise to 196 million tonnes in 2020F (+13% from 174 million tonnes estimated in 2019) as production is projected to grow 1% to 2% while consumption is projected to contract by 1.4%.

"We project an average cement price in Peninsular Malaysia of RM195 per tonne in 2020F (revised up from RM190 per tonne we assumed previously)," AmInvestment said.

AmInvestment expects a very gradual rise in cement prices as the supply tightens.

With YTL Cement Bhd taking over Lafarge Malaysia Bhd in 2019, AmInvestment believes that the fight for market share will ease, paving the way for players to shut down underutilised plants to optimise operations.

According to the research house, in terms of cement consumption in Peninsular Malaysia, it projects 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.

Typically, during a property boom, the property sector consumes about two thirds of total cement production, while the balance one third goes to the construction sector.

AmInvestment projected an average aluminium price of US$1,850 per tonne in 2020F, which was unchanged from its previous assumption and as compared with an average of about US$1,900 per tonne over the last three years to reflect the uncertain global economic outlook against a backdrop of the lingering US-China tension that hurts demand and prices of commodities in general.