South Korea: Cement Industry Gains from Price Increase Last Year, but Faces Challenges Ahead
Despite the downturn in the construction sector, major cement companies recorded growth last year due to stabilized coal prices and the effect of price increases.
Last year, major cement companies managed to achieve growth amidst the construction sector's slump, thanks to the stabilization of coal prices, which lowered manufacturing costs, and the beneficial impact of price increases. According to the Financial Supervisory Service's Electronic Disclosure System, apart from Sampyo Cement, which has yet to disclose last year's performance, domestic 'Big 5' cement companies like Ssangyong C&E, Hanil Cement, Asia Cement, and Sungshin Cement have seen improvements in their performance.
Hanil Cement reported the highest growth among its peers, with sales reaching 1.8 trillion KRW and operating profit at 246.6 billion KRW last year, marking increases of 21.0% and 109% respectively compared to the previous year. Asia Cement and Sungshin Cement also reported significant rises in sales and operating profit, with the latter experiencing an operating profit surge from 18 billion KRW to 733 billion KRW, an almost 4000% increase.
The industry benefited from four price hikes over the past two years, with cement prices soaring by nearly 50%. Additionally, the drop in coal prices by approximately 40% since late 2022 contributed to the cost reduction, enhancing the profit margins for these companies.
However, the forecast for this year appears grim as the continuous slump in the construction industry, driven by a downturn in the real estate market, poses significant challenges. Last year's construction starts and permits decreased sharply, suggesting a bleak outlook for cement demand. The Ministry of Land, Infrastructure, and Transport's 2023 housing statistics show a 25.5% decrease in nationwide housing permit volumes, with construction starts also significantly reduced.
Industry experts predict a 1.2~1.8% decline in construction investment this year, which will likely lead to a further reduction in construction and consequently, cement demand. The Korea Construction Industry Research Institute estimates cement demand might fall by 1.0% from the previous year, reaching levels similar to 2020-2021.
With additional challenges such as potential rises in electricity and urea water solution prices, the cement industry faces a tough year ahead. Unlike last year, where price increases helped offset the impact of the downturn in the construction sector, the current environment makes further price hikes difficult, leaving companies searching for solutions amidst declining performance.
Source
Seoul Finance - A South Korean financial news outlet providing in-depth coverage of local and international economic trends.
