Factory utilization rates at major cement companies plunged to the 50% range last year due to the construction industry downturn. With shipments declining amid weak construction activity and raw material prices rising in the wake of Middle East conflicts, cement makers face mounting pressure on their bottom lines.
According to regulatory filings released on the 13th, utilization rates at major cement plants fell across the board last year. Sampyo Cement's (038500.KQ) factory utilization rate dropped to 49.7%, down 11.9 percentage points from the previous year. Hanil Cement (300720.KQ) at 59.1% and Asia Cement (183190.KQ) at 58.8% also declined by 6.8 and 8.3 percentage points respectively, with both entering the 50% range. These figures fall below the manufacturing industry's average utilization rate of 72.6% last year.
The decline in utilization rates is attributed to cement companies adjusting production volumes as demand fell amid the construction slump. Domestic cement shipments totaled 38.1 million tons last year, marking the lowest level in 34 years. The drop in demand was directly reflected in earnings. Ssangyong C&E reported consolidated operating profit of 106 billion won, down 43.4% from the previous year. Hanil Cement and Asia Cement posted 132.7 billion won (down 51.1%) and 77.1 billion won (down 45%) respectively.
Concerns are growing that shipments this year could deteriorate further from last year due to added risks from the Middle East war.
The Korea Cement Association has forecast cement shipments of 36 million tons this year. "Actual shipments will likely be lower than this following the outbreak of the Middle East war," an industry official said. "Some are saying it could fall 10% below the forecast."
Cost pressures on the cement industry are intensifying as prices of bituminous coal, which accounts for 20-25% of production costs, have risen alongside the exchange rate. According to raw material price data from the Ministry of Trade, Industry and Energy, the price of Australian Newcastle thermal coal for power generation increased 22.6% from an average of $109.15 per ton in January to $133.86 in March.
Supply disruptions are also affecting grinding aids and urea needed for cement production. Prices of grinding aids, cement additives that enhance strength, have jumped two to three times due to supply constraints. The cost of urea, used to remove nitrogen oxides generated during manufacturing, has also increased.
"We used to import affordable Middle Eastern urea processed in China, but supplies have been cut off, so we're currently using ammonia-based substitutes," a domestic cement company official said. "In the past, the substitutes were more expensive, but now urea is pricier and harder to source."
"The most important thing is to prepare various alternatives and measures to stimulate the construction industry," said Han Chan-soo, director of the Korea Cement Association. "Additionally, companies pay levies on nitrogen oxide emissions, and if those funds could be used as subsidies for environmental facility investments, it would ease the burden on the industry."
