Korea Cement Association on November 11, domestic cement demand in Korea is expected to be only 36.5 million tons this year, down 16.5% from the same period last year, a decrease of 7.21 million tons, which has fallen to the lowest level since 1991.
From a historical perspective, the Korean cement industry reached a historical peak of 61.75 million tons in 1997, but plummeted to 44.61 million tons during the 1998 financial crisis. Despite the gradual recovery since then and rising to 56.71 million tons in 2017, the demand has fallen again by nearly 20 million tons in just eight years, and the industry is facing unprecedented difficulties. It is worth noting that the production capacity of 37.11 million tons in 1991 was realized under the background of annual production capacity of 42.1 million tons, when the construction of new towns in Seoul metropolitan area led to the rapid growth of demand; now the production capacity has been increased to 61 million tons, but the demand has fallen off a cliff, and the actual capacity utilization rate gap is even wider. The overall contraction of the
construction industry is the core reason for the collapse of cement demand. As a leading indicator, the number of construction orders decreased by 18.9% year on year, while the synchronous indicators such as construction area and completion volume also decreased by 12.8% and 18.1% respectively. At the same time, the government-led social indirect capital budget has been shrinking in recent years, further inhibiting the recovery of demand. The Cement Association pointed out that although the demand for next year is expected to be 36 million tons, the decline narrowed to 1.4%, the market recovery is almost hopeless under the multiple pressures of shrinking construction volume, tight capital chain in the construction industry and soaring construction costs.
In addition to the weak demand side, the Korean cement industry is also facing a sharp rise in operating costs. During the trial period of the truck safety freight system from 2020 to 2022, the cost of bulk cement trailer transportation increased by about 40%, which brought an additional burden of 1.2 trillion won to enterprises in three years. What is more serious is that the government's latest national independent contribution target for 2035 requires the cement industry to reduce carbon emissions by 53% to 61% compared with 2018, but the supporting implementation rules are seriously lacking, which makes enterprises at a loss.
The export market has become the only bright spot, with cement exports increasing 52% year-on-year to 4.5 million tons this year, and is expected to remain around 3.5 million tons next year. The Cement Association stressed that in the case of a sharp decline in demand, regulatory policies that weaken the long-term competitiveness of the industry continue to be introduced, enterprises will face the worst operating environment, and the whole industry has reached the brink of crisis.
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