[GLOBAL ECONOMIC TIMES] Tensions between industries are growing as construction companies send price negotiation notices to major domestic cement manufacturers to lower cement prices. The construction industry's position is that price adjustments are necessary to account for the decline in bituminous coal prices, but the cement industry has expressed a strong stance, including concerns about worsening performance, saying, 'This is an unprecedented situation that has never been experienced even during the IMF crisis.'
According to the construction industry on the 13th, the Korea Construction Materials Workers' Association (Constructioners' Association) sent an official letter to seven cement manufacturers and a ready-mix concrete group on the 9th requesting attendance at cement price negotiations. It has been less than three months since an official letter was sent to cement companies and ready-mix concrete groups at the end of June requesting participation in price negotiations.
The Construction Association said, “By participating in price negotiations in the second half of 2023, we sympathized with the difficulties faced by the cement industry and agreed to a price increase,” adding, “We requested to renegotiate the price based on our commitment to lower the cement price if the price of raw materials at the time is lowered.” “I put it in,” he said.
The Construction Association cited the decline in the price of bituminous coal, a raw material for cement, as the basis for requesting a reduction in cement prices. The price of bituminous coal, which accounts for about 30% of cement costs, has soared from $256 (353,638 won) per ton (t) in the first half of 2022 to $444.53 (614,073 won) in the second half of 2022. However, it fell to $92.96 (128,414 won) last June, and hit $144.76 (194,238 won) in August.
Based on this, the construction association requested a reduction in the price of cement by 11,000 won per ton. The current price of 112,000 won per ton is 101,000 won, which is appropriate considering production costs.
Construction companies belonging to the Construction Association are demanding that the pain of the construction industry be shared through price cuts as the construction economy is difficult. In particular, the industry explains that voices have grown louder recently as large construction companies have also participated in the construction association.
However, the cement industry is complaining of difficulties on a large scale by issuing a press release saying that cement production and shipments in the first half of this year in Korea have decreased significantly. According to the Korea Cement Association, cement production in the first half of this year was 22.74 million tons, a decrease of about 13% compared to the same period last year. Shipments also decreased by about 12% to 22.84 million tons. Inventory increased by 16% due to decreased shipments.
It is known that as demand for cement has decreased rapidly due to the recession in the construction industry, some companies are even considering stopping partial facility operations to adjust production. There are predictions that annual shipments will fall below 40 million tons in the next 2-3 years, and an official from the Cement Association explained, “Annual shipments of 40 million tons is an unprecedented situation that has never been experienced even during the IMF foreign exchange crisis.”
Industry officials also explained that the surge in operating profits of cement companies was a temporary rebound due to the increase in cement prices last year. The total sales of the five cement companies in the first half of this year were 2.8378 trillion won, similar to the same period last year, but operating profit surged 60% to 363.2 billion won.
In addition, they also appealed that it is difficult to lower cement prices solely by lowering the price of bituminous coal. This is due to electricity charges, which account for another 30% of the cost of cement. If electricity rates rise in the second half of the year, the decline in bituminous coal prices will be offset.
A cement industry official said, “There are many construction companies that only raised prices by 60-70% of the increase requested during cement price negotiations last year, so it is embarrassing that they are now talking as if they have raised everything and asking for a reduction.”
He continued, “The proportion of cement price in construction costs is very low, about 0.4%,” and added, “In a situation where the prices of all other materials are maintained, asking for a price drop just because cement companies are making a profit is just telling them to incur a loss. “Also, in a situation where the scale of facility investment exceeds the net profit for the period due to strengthened environmental regulations, if the price is lowered, cement companies will have no choice but to go out of business.”
Meanwhile, the government is also urging a reduction in cement prices as one of the measures to increase construction costs, so the industry is paying attention. The Ministry of Land, Infrastructure and Transport plans to announce a ‘construction cost stabilization plan’ within this month to respond to the surge in prices of raw materials such as cement.
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