Global tensions drive up costs for Sarawak’s construction

KUCHING (March 26): The ripple effects of the Middle East conflict are beginning to weigh on Sarawak’s construction sector as rising fuel and material costs affect project execution.

Hartanah Kenyalang Bhd (Hartanah Kenyalang) managing director Seah Boon Tiat said the situation remains beyond the group’s control particularly following the escalation of tensions involving Iran, Israel and the United States.

Diesel prices, he noted, surged sharply in the immediate aftermath, nearly doubling, while suppliers have begun signalling potential increases in material costs, particularly aluminium.

For the group’s RM184.3 million contract awarded by the Public Works Department (JKR) Sarawak to upgrade and repair the Sarawak Stadium, Seah said the increase in prices for aluminium, which is the main material for the Sarawak Stadium’s façade, has impacted the overall construction cost.

“To circumvent further increase in aluminium prices, we have locked in almost 80 per cent of the required quantity,” he told The Borneo Post in a recent interview.

To manage this rising costs, Seah said the company has adjusted its construction approach by shifting to prefabrication.

Instead of installing aluminium façade components individually using skylifts, he said the materials are now prefabricated into panels on the ground before being lifted and installed in sections.

“This method actually shortens the period of the construction time and therefore reduces labour and machinery costs. This offsets part of the increase in material costs,” he added.

The Sarawak Stadium project, which began in January, is scheduled for completion on Jan 29, 2027, and remains on track, according to Seah.

According to analysts at Maybank Investment Bank, gasoil prices have climbed to US$123.6 per barrel, while diesel prices in Malaysia rose 26 per cent to RM3.92 per litre as of March 11.

The research house in a March 13 sector update note said rising crude oil prices driven by geopolitical tensions are likely to increase construction costs in Malaysia, with diesel being the most impacted.

Increased fuel costs raise transportation expenses for materials such as cement, steel, sand and prefabricated components, which are often transported over long distances. Transportation alone can account for between 10 and 25 per cent of delivered material costs.

“Malaysian construction companies mostly pay market diesel prices as subsidised diesel is restricted to logistics, public transport, and a few essential sectors.

“Construction companies therefore face higher operating expenses, which force them to raise tender prices for new projects or experience margin compression for
existing fixed price contracts,” it said.

For construction players like Hartanah Kenyalang, Seah said the increase in concrete prices and transportation costs are unavoidable, particularly for imported materials.

He added that the strain is being felt across the industry, with road construction contractors facing the greatest pressure due to their heavy reliance on diesel and the transportation of aggregates such as sand and stone.

To manage fuel price volatility, Seah said contractors have limited options but to ride through this uncertain period.