The cement industry is facing a double whammy due to the rise in exchange rates stemming from the impeachment crisis and transportation disruptions caused by a railroad strike. As the won-to-dollar exchange rate rises, the burden of imported raw material prices increases, and cement transportation via rail is also not proceeding smoothly.
According to the cement industry on Nov. 11, recent cement companies are closely monitoring the rising trend of the won-to-dollar exchange rate. After the declaration of martial law, the impeachment crisis has led to a surge in the exchange rate to a crisis level, which could significantly increase the expense of importing coal, a raw material for cement. Coal accounts for about one-third of cement manufacturing costs.
A cement industry official noted, “The cement industry is a domestic industry, so the impact is not severe, but from the perspective of importing coal, a major raw material, a continuous rise in the exchange rate is burdensome.” He added, “While there are some parts that have hedged against the exchange rate through fixed-price transactions in long-term deals, there are cases where spot imports are made as necessary, making the rising exchange rate unwelcome.”
Concerns about housing supply arising from the impeachment crisis are also bad news for the cement industry. A decrease in housing supply leads to reduced cement usage, resulting in decreased performance for cement companies. The scale of housing starts has decreased for three consecutive years, and this year, housing construction permits are expected to hit an all-time low. According to housing statistics released by the Ministry of Land, Infrastructure and Transport, the housing construction permit records for the period of January to October this year stand at 244,777 units, a decrease of 19.1% compared to the same period last year (302,744 units).
Kim Seung-jun, a researcher at Hana Securities, said, “The impact of the decrease in starts has begun to manifest for cement companies,” adding that “in the fourth quarter, cement production is expected to decrease by 14.2% compared to the same period last year.”
The cement industry is experiencing transportation disruptions due to the strike by the National Railroad Workers Union. According to the Ministry of Land, Infrastructure and Transport, the operation rate of freight trains is at about 23.3%. The cement industry expects that the impact from the strike will not be significant, as they have stockpiled inventory at distribution bases in the metropolitan area in preparation for the railway strike. However, since cement cannot be stored long term and can only be kept for about 3 to 4 days, if the strike is prolonged, the cement industry will need to implement additional measures, such as halting factory operations. Furthermore, as the Cargo Solidarity has also entered a warning strike, the hardships for the cement industry could increase if a general strike occurs.
Another official from the cement industry mentioned, “As strikes occur annually, the use of rail transport has been reduced over a long term from the previous 30% level to 14%.” However, he also noted that “inland areas where maritime transport is difficult can only rely on road transport for cement, so if the strike is prolonged, the negative impact could increase.”
The cement industry has already seen a decline in sales due to reduced production. This year's third-quarter revenue for the cement industry decreased by 1.8% compared to the same period last year. By company, Ssangyong C&E saw a revenue drop of 11.3% year-on-year, while Hanil Cement's revenue also fell by 8.3% during the same period. Asia Cement reported a staggering revenue decrease of 14.7%. Profitability has also decreased for most cement companies. According to public disclosures from each company and Hana Securities, the third-quarter profitability declined by 5.8% for Ssangyong C&E, 13.1% for Hanil Cement, and 2.1% for Asia Cement compared to the previous quarter.