Domestic Cement Demand Drops 18% in Last 5 Years... 'Biggest Crisis Since IMF'

Cement Prices Steady, Cost Burden Soars, Pressure from Local Resource Facility Tax Increases

[Asia Economy Reporter Kim Jong-hwa] Since 2016, the cement industry has faced a crisis as domestic cement demand has continuously declined over five years due to a prolonged slump in the construction market and low investment in social overhead capital (SOC) sectors.

According to the cement industry on the 13th, domestic cement sales volume dropped sharply by 18%, from 55.8 million tons in 2016 to a provisional 46 million tons in 2020.

This level is close to the 44.6 million tons seen during the 1998 IMF financial crisis, raising concerns within the cement industry that if there are no clear improvements in market conditions such as cement price hikes this year, it could be the worst year in the history of the cement industry.

Alongside the sharp decline in domestic demand, the rise in manufacturing costs is also significant. Cement prices (approximately 62,000 KRW/ton), which should trend upward with economic development and inflation, have remained flat with little change compared to over 20 years ago.

Costs such as nitrogen oxide emission charges (15 billion KRW), increased investments due to strengthened government environmental regulations (around 180 billion KRW), greenhouse gas emission permit purchase costs?expected to be 30,000 KRW/ton this year and amounting to about half of the cement price?and logistics cost increases due to higher freight truck safety fares (about 60 billion KRW over two years) are pushing the cement industry into a severe management crisis. The combination of declining domestic demand, stagnant prices, and rapidly increasing cost burdens has trapped the industry in a slump.

Moreover, the price of bituminous coal, which accounts for the largest share of manufacturing costs, has recently surged. Bituminous coal, the main fuel for cement, is entirely imported from overseas. Due to the nature of bituminous coal prices fluctuating with international economic conditions and seasonal factors, international prices have risen sharply by 37.7% over six months. According to the Korea Resource Information Service, the price increased from $52.9 per ton in July last year to $72.8 per ton in December.

The cement industry has been striving to reduce the proportion of bituminous coal, a fossil fuel, to lower greenhouse gas emissions. By focusing on environmental projects that recycle waste plastics?now a global symbol of pollution?as combustible fuel, the industry is emerging as a problem solver for environmental issues. However, since the fuel recycling rate is lower domestically (about 25%) compared to Europe (about 46%), the industry still heavily depends on bituminous coal.

Recently, Ssangyong Cement recorded a double-digit operating profit margin for seven consecutive years, reaching 17% last year. However, due to the contraction of the construction and real estate markets caused by COVID-19, abnormal summer weather such as heavy rains and typhoons, domestic cement demand decreased, and sales prices fell, resulting in a 4.4% decrease in sales compared to 2019.

This is attributed to the effect of investing about 100 billion KRW over two years to foresee changes in the domestic recycling resource market and fully operate a recycling resource processing facility last year. It is difficult to judge this as a general industry-wide performance.

Legislative efforts by metropolitan local governments such as Gangwon and Chungbuk provinces to impose a regional resource facility tax (about 50 billion KRW annually) on the cement industry to compensate for tax revenue shortages are also pushing the cement industry into its worst situation.

A representative from the Cement Association lamented, "The funds that must be immediately invested, including 180 billion KRW for environmental investments and 30 billion KRW for this year's increase in the safety fare system, total a staggering 210 billion KRW. This amount nearly equals the net profit earned up to the third quarter of last year (220 billion KRW). Moreover, if the regional resource facility tax bill passes the National Assembly, the burden will soar to about 260 billion KRW, exceeding net profits, making business deterioration unavoidable."

This content was produced with the assistance of AI translation services.