AGV GROUP: In sweet spot as $700m public projects are brought forward

Galvanized steel plates being transferred to a station for final inspection and touch-up at AGV’s Singapore plant. (Photo: Company) AGV Group, the only hot dip galvanizer listed in Singapore, is in a sweet spot to reap benefits from the government’s decision to bring forward another S$700 million of public sector infrastructure projects. This is in addition to the S$700 million worth of public sector infrastructure projects brought forward to 2017 and 2018, announced during the Budget in February this year.

Funnelled to handful of players

Hot dip galvanizing is one of the most cost effective ways to protect iron and steel from rust and corrosion. Without sufficient corrosion protection, buildings, roads, and bridges need frequent repairs and would have much shorter life expectancies.

Galvanized iron and steel are therefore needed in a myriad of industries, ranging from manufacturing, public and private sector construction, to telecommunications, defense and transport. 

There are only about 5 major hot dip galvanizing players in Singapore because of the high barriers to entry to the specialized business.

High capital expenditure is required to set up a hot dip galvanizing plant. Detailed knowledge and industry contacts are also required.

The fabricators or manufacturers of iron and steel products usually split up the galvanising work for each project among various hot dip galvanizers. There are two reasons for this:

• A quicker turnaround time is achieved when each galvanizing plant has a smaller batch size.
• Better management of supplier risk.

A recovery in any part of the large construction sector inevitably benefits the AGV Group, which has over 900 customers.

Demand boost from sustainable construction
Galvanized steel is fully recyclable, with a life expectancy of 20 to 25 years in urban areas. The Building Construction Authority is promoting galvanized steel as a tool for sustainable construction. 

For public projects that cost more than S$3 million, the price component now makes up about 70% of a tender evaluation. The non-price percentage will be raised to 40% to 60% by next January.

The government will look at a contractor's past performance, productivity and safety aspects to assess quality. Greater emphasis on quality over price in the tender process for government projects could lead to higher demand for galvanized steel.

On 24 April, AGV said, so far in the financial year ended 30 September 2017, it had secured contracts to galvanise 22,618 tons of iron and steel for projects including the fabrication of water treatment and petrochemical plants. For the whole of FY2016, it galvanized more than 46,000 tonnes of steel and iron in Singapore.

For AGV Group's 1HFY2017 financial statements, click here.