[Cement·Ready-Mix Concrete Crisis] A Virtuous Cycle Must Be Established Through Appropriate Price Guarantees

[Planning] Cement and Remicon Industry in Crisis
Severe Conflicts with Every Price Increase
This Year’s Negotiations Proceed Smoothly
Industry Shifts Amid Fear of Mutual Destruction
Competitiveness Declines Due to Unit Price Competition
Ultimately Causes Side Effects at Construction Sites

Workers at an apartment construction site.
Photo by Yonhap News

④Finding a Path to Coexistence through Paradigm Shift

[Asia Economy Reporter Kim Jong-hwa] In June, representatives from the cement and ready-mixed concrete (remicon) industries agreed to raise the price of cement by 5.1% (3,800 KRW) from the previous 75,000 KRW per ton (based on the announced price) to 78,800 KRW per ton, effective July 1. The remicon and construction industries also agreed to increase the price of ready-mixed concrete in the metropolitan area by 4.9%, from the current 67,700 KRW per cubic meter (based on coarse aggregate 25mm, 24MPa, slump 15cm) to 71,000 KRW, starting in October.

Compared to the past, when conflicts and confrontations peaked at each price increase, this year’s negotiations proceeded relatively smoothly and produced results. Industry insiders noted, "Construction sites, which frequently faced supply stoppages due to sharp conflicts over price hikes, are now changing."

A cement industry official said, "Although the agreed increase rate was lower than initially proposed, the remicon industry empathized with the reasons behind the cement price hike and made maximum concessions. We are grateful that the remicon industry accepted the cement price increase despite facing difficulties such as rising transportation costs and the issue of increasing mixer trucks."

It was also reported that there were no significant conflicts during the price negotiations between the remicon and construction industries. Both industries shared the understanding that prolonging negotiations during the peak season from September to early December, which determines annual business performance, would not be advantageous.

A remicon industry official stated, "Especially this year, with large-scale national projects such as the 3rd New Town and full-scale housing construction sites on standby, the burden of being blamed as the main culprit for worsening material supply instability due to conflicts between the remicon and construction industries led to magnanimous concessions. It seems there is a shared sense of crisis about mutual destruction caused by intense inter-industry conflicts and confrontations. There is consensus that without shifting the paradigm from competition and confrontation to coexistence, there is no future."

The development of the construction industry depends on stable and smooth supply of materials from downstream industries such as cement, remicon, steel, and finishing materials. While the ups and downs of the construction industry affect the business performance of the material industries, the fluctuations in the material industries also impact the construction industry. In particular, an appropriate delivery price is a common prerequisite for the sustainable development of the construction materials industry.

A team leader from the cement industry, who experienced the International Monetary Fund (IMF) foreign exchange crisis and the late 2000s US economic crisis, said, "When I joined in 1997, the price of 1 ton of cement was 67,500 KRW, but due to cutthroat competition, last year the price dropped to the low 60,000 KRW range. For 23 years, the cement industry has endured only through cost reductions and harsh restructuring to survive, caught in a vicious cycle of price undercutting rather than increases."

Halla Cement was sold to the French Lafarge Group and then again to Asia Cement, while Ssangyong Cement, whose shares were acquired by Japan’s Taiheiyo Cement, was later sold to the domestic private equity fund Hahn & Company, experiencing changes in management control.

In particular, the IMF foreign exchange crisis and the US economic crisis triggered severe cutthroat competition among domestic companies, leading to cement being sold at prices so low that there is no comparable example worldwide. According to last year’s overseas market survey by KOTRA, domestic cement prices are even lower than those in developing countries such as Nigeria and Indonesia, where per capita GDP (labor costs) is one-third to one-fifteenth of Korea’s.

Because cement prices are low, remicon prices inevitably remain low as well. Especially for financially weak local small and medium-sized remicon companies, the only survival strategy was maintaining market share through lowering delivery prices. This led to side effects.

Turning a blind eye to cutthroat competition among material industries, substandard remicon using less cement than the KS standard appeared, and the construction industry that used it suffered significant damage to brand image. The cement industry, unable to sell cement in the correct quantities, incurred sales losses, and the remicon industry bore the disgrace of producing substandard remicon. Although low prices initially benefited the construction industry, the two industries failed to internally absorb the factors causing price declines, reaching their limits and causing adverse effects.

Experts say that a healthy industrial ecosystem can be established only when appropriate price guarantees and reinvestment through a virtuous cycle are secured. Professor Bae Jae-geun of Seoul National University of Science and Technology said, "Forming appropriate sales prices for primary industries such as cement and remicon is very important. Excessively low prices hinder secondary investments for pollution prevention and ultimately lead to the deterioration of related industries. Importing construction materials like cement from overseas does not only increase procurement costs but also severely damages the national economy."

Professor Bae emphasized, "For sustainable development and the establishment of a healthy industrial ecosystem, appropriate prices must be guaranteed and reinvested through a virtuous cycle. It is time to prioritize coexistence over collective interests and to think of concessions before demanding sacrifices."

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