Cement, Remicon, and Construction Industries Begin Full-Scale 'Unit Price Negotiations'

Negotiations for cement price increases have been in full swing since the end of last month.
[Photo by Yonhap News]

[Asia Economy Reporter Kim Jong-hwa] Price negotiations for cement, ready-mixed concrete, and construction companies are intensifying due to the rise in international raw material prices.

Recently, the cement industry has been hit hard by the shortage of thermal coal, as imports of Russian thermal coal, which accounts for 75% of total thermal coal imports, have been suspended due to the Ukraine crisis. Thermal coal is a raw material for cement production, requiring about 0.1 tons of thermal coal to produce 1 ton of cement, and it accounts for more than 40% of cement production costs.

According to the Korea Resource Information Service on the 3rd, the price of thermal coal (Northeast Asia CFR basis) rose from $129.44 per ton on December 3 last year to $199.55 per ton on the 25th of last month, an increase of more than 54% in just three months. The industry expects the price to surpass $200 per ton soon and maintain the $200 level throughout the first half of this year.

Accordingly, in January, major cement companies such as Ssangyong C&E, Hanil, Halla, Sampyo, and Sungshin Cement notified ready-mixed concrete companies that they would raise the cement price of 78,800 KRW per ton to 93,000 KRW by Ssangyong C&E, 94,000 KRW by Sampyo Cement, and 92,500 KRW by Sungshin Cement, representing a 17-19% increase. After about two months since the notification, full-scale price negotiations began on the 28th of last month.

Typically, the cement and ready-mixed concrete industries supply cement in advance every month and settle payments at the end of the month. Starting from the first payment day at the end of last month, companies simultaneously entered price negotiations. A cement industry official said, "From this point until the increased amount is deposited into corporate accounts, we have to continue tedious negotiations with ready-mixed concrete companies."

Last year, it took 8 to 11 months to raise cement prices. Starting with Halla Cement in August 2020, followed by Hanil Hyundai Cement and Ssangyong C&E in November, cement companies requested price increases, but the ready-mixed concrete industry did not accept them. Subsequently, negotiations began with each company, and it took as long as 11 months of prolonged tug-of-war to raise the price from 75,000 KRW to 78,800 KRW per ton starting July 1.

A cement industry official said, "This year, due to the surge in thermal coal prices, price increases are more urgent than ever." The ready-mixed concrete industry also somewhat understands the cement industry's stance on price hikes due to the thermal coal price surge.

A ready-mixed concrete industry official said, "We expect no major obstacles in cement price negotiations," adding, "The cement price serves as a barometer for negotiations with construction companies. Construction companies need tax invoices showing the increased prices because they check whether the actual transaction prices have risen." This indicates that more emphasis is placed on negotiations with construction companies than with the cement industry.

Another ready-mixed concrete industry official said, "The problem lies in negotiations with construction companies. Their increase rates are excessively stingy," emphasizing, "This year, the increase must be at least double digits (10% or more)."

In response, a representative of the Korea Construction Materials Workers' Council, a partner in ready-mixed concrete price negotiations, explained, "Although construction companies say the increase rates are stingy, we have always reflected appropriate increase factors," adding, "However, even if raw material prices rose in the middle, we hoped the existing prices would be maintained for the promised period of one year." The official added, "This year, negotiations will start with local small and medium-sized ready-mixed concrete companies. We will reasonably reflect the increase."

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