Fletcher faces hit from tariff cuts

The Government expects the removal of tariffs to save around $3500 on the construction of a home. Photo / Thinkstock

Builder could be forced into bidding war against cheaper overseas supplies: expert.

New Zealand's biggest listed company, Fletcher Building, could be hurt by the Budget move to axe temporarily anti-dumping duties on building materials covering 90 per cent of a new home's construction, say experts.

Carlie Eve, of Mint Asset Management which holds Fletcher shares, predicted Fletcher could be forced into a bidding war against cheaper supplies from overseas.

"The removal of the tariffs and duties will have a negative impact on pricing and in some instances market share for Fletcher Building," she predicted.

But other Budget spending might smooth the company's rougher ride.

"Other aspects of the Budget including an acceleration of roading projects may offset this impact to a large extent."

Mark Lister, head of private wealth research at Craigs Investment Partners, said the Budget move looked like a negative for Fletcher Building "albeit maybe just a mild one".

"An end to the tariffs and duties on some imported building materials will make some imported products cheaper, which means that locally sourced products, like those produced by Fletcher, will be a little less competitive, unless they are willing to respond by sharpening up their pricing," Lister said.

Robert Manning, business development manager of Elephant Plasterboard (NZ), said he could see the greater good in slicing new home costs, but he questioned the quality of imports, which he predicted would mainly come from Asia.

"More competition is surely good for New Zealand but will these products tick the boxes for warranties, guarantees and longevity? Competition is good for the consumer and it's what everyone should be striving for. But Elephant Plasterboard only has 3 per cent of the market, with a tail wind on a good day. How can a company with a good product and good system which has been in business for 26 years only have 3 per cent?" he asked, referring to what he called monopolistic business practices in this country.

Fletcher dominates plaster board with 94 per cent yet Philip King, investor relations manager, said no comment would be made on the issue and referred to the Building Industry Federation statements which claimed companies and jobs could be lost due to cheap imports.

Winstone Wallboards' general manager David Thomas has claimed the business is only dominant because it manufactures and delivers the best product to customers.

Manning predicted the Budget move would lead to more Chinese, Thai, Indonesian and Korean building materials being imported after Finance Minister Bill English announced the immediate suspension of anti-dumping duties through Budget-night legislation on plasterboard, wire nails and reinforcing steel bar for three years.

From July 1 a zero concessionary tariff, to be reviewed after five years, covering around 90 per cent of the materials in a new home was expected to save around $3500 on the construction of a standard home, he said.

"We see considerable economic benefits from an immediate reduction in the cost of construction at a time when housing construction is taking off," English said.

Manning said New Zealanders would welcome more building materials being imported from Australia, due to high quality and lower prices there. But he said plaster board only accounted for about 3 per cent of a new house cost yet nothing was being done to lower the price of timber which made up about 33 per cent.

Back story
• November 6: Government announced plans to reduce building materials costs.
• Material costs 30% higher here than in Australia.
• 19% of house-building sector's output is imported content.
• Plasterboard for NZ house costs $12,713.
• Plasterboard for Australian house costs $8973.
• Eave/gable material here $3524, $1395 in Australia.
• Pre-nailed framing $10,575 here, $7920 in Austalia.
Sources: Russell McVeagh, MBIE, Productivity Commission.

Big-time landlords welcomed the Budget, particularly Auckland's infrastructure programme, the Christchurch rebuilding and fast-track housing.

Connal Townsend, chief executive of the Property Council, praised the Government's commitment to housing. Steps to accelerate building Auckland infrastructure such as roading and rail and work to ensure lower construction costs, more equitable development contributions and efficient Resource Management Act processes could only be good for New Zealand, he said.

But he called for the Government to go further. "Measures over the next year must include releasing land for development, agglomeration of sites to enable a big enough footprint for dense development ... and streamlined efficient consent processes. The Budget leaves a gaping hole in the area of seismic strengthening ..."